Lightspeed Commerce Stock

Good morning ladies and gentlemen, my name is made Manon Brouillette, Executive Chair of Lightspeed Board of Directors, I'd like to welcome you to Lightspeed's Annual and Special Shareholders Meeting on behalf of management, our employees and the Board of Directors.

Good morning, everyone. My name is Manon Brouillette, Executive Chair of the Lightspeed Board of Directors. I'd like to welcome you to the Lightspeed Annual and Special Shareholder Meeting on behalf of management, our employees and our Board of Directors, namely Ms. Dale Murray, our Lead Independent Director, Chair of our Compensation, Nominating and Governance Committee and a member of our Audit Committee. Mr. Dax Dasilva, Founder, CEO and a member of our Board of Directors; Ms. Nathalie Gaveau, a member of our Compensation, Nominating and Governance Committee; Mr. Glen LeBlanc, Chair of our Audit Committee and a member of our Risk Committee; Mr. Sameer Samat, a member of our Compensation, Nominating and Governance Committee and Risk Committee; Mr. Odilon Almeida, Chair of our Risk Committee and a member of our Audit Committee; and myself, Manon Brouillette.

We are holding this meeting virtually to reduce the company's environmental footprint and to give shareholders an equal opportunity to attend and participate. I'll begin by introducing the people with me. We have the pleasure of having with us today Mr. Dax Dasilva, our Chief Executive Officer; Ms. Asha Bakshani, our Chief Financial Officer; Mr. Dan Micak, our Chief Legal Officer and Company Secretary; and a team from TSX Trust Company, the company's transfer agent and this meeting's scrutineers. Before we begin, I'd like to say a few words about today's proceedings. Firstly, only registered holders and shares of record as of June 1, 2026, or their duly appointed proxy holders are permitted to participate and vote at this meeting.

Following the formal portion of the meeting, time permitting, the members of management here with me today will be available to answer your questions. Although the majority of this meeting will be held in English, please feel free to address the meeting attendees in English or in French. A live translation is also available for the participants of this virtual meeting. Even though most of this meeting will be held in English, we do invite you to ask your questions in any -- in either of those languages, English or French, we have simultaneous interpretation for all participants attending.

Shareholders who wish to communicate with members of the Lightspeed team here with me or who wish to present or ask a written or verbal question in respect to a motion may do so using the dialogue box on the Lumi virtual interface. At this meeting is held virtually, we will set out a few rules for the orderly conduct of the meeting. Questions can be submitted by any registered shareholder or duly appointed proxy holder using the instant messaging service on the Lumi virtual interface. verbal questions can be asked via phone by any registered shareholder or duly appointed proxy holder. To do so, please send your phone number and the subject of your question using the messaging tab in the Lumi virtual interface in order for a Lumi represent to dial you in.

When asking a question, please state your name and the entity you represent. Please confirm that you are a registered shareholder or a duly appointed proxy holder. Please indicate to whom your question is addressed and please cover only one topic per question. Except for questions regarding procedural matters or questions directly related to a motion at end, questions will only be addressed during the question period at the end of the meeting.

We will now address questions at the -- we will not address questions at the meeting that are irrelevant to Lightspeed operations or to the business of the meeting or related to nonpublic information or repetitive of questions submitted by other persons include offensive references relate to proposals that were not previously submitted properly in accordance to -- with Lightspeed bylaws or the Canada Business Corporation Act or are out of order or not otherwise appropriate. For the purpose of the meeting today, voting on all matters will be concluded by one single electronic ballot in accordance with the company's bylaws and the Canada Business Corporation Act.

Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentation of all of the business items. When you are asked to vote, a voting tab will appear at the top of your screen. Click on it to access the voting panel. Discussions during today's meeting may contain forward-looking information about Lightspeed's outlook, objectives and strategies to achieve them. These statements are based on assumptions and are subject to important risks and uncertainties.

The company's actual results could differ materially from any expectations discussed. A disclaimer regarding forward-looking information is on the current slide and can also be found on Lightspeed public disclosure record available on our website, SEDAR+ and EDGAR. We will now proceed with the formal portion of today's meeting. I call to order the Annual and Special Meeting of the Shareholders of Lightspeed. In accordance with Lightspeed's bylaw, I will act as Chair of the meeting, and Mr. Micak will act as Secretary of the meeting. In addition, I have found our registered and transfer agent, TSX Trust Company, to act as scrutineers for this meeting. The scrutineers will report on the number of shares represented both virtually and by proxy at this meeting.

They will also count the votes and report the voting results. The matters to be discussed today are set out in Lightspeed's management information circular dated June 26, 2026. This year, the company again used the notice and access procedures under Canadian Corporate and Securities law to make available meeting materials to shareholders and sent a notice with all relevant information in that regard. I will not read the notice of meeting since the meeting materials are available on TSX Trust Company's online platform, on our website and under the profile on SEDAR+ and EDGAR.

Our transfer agent has attested to the proper mailing of the meeting materials. A copy of all meeting materials will be kept by the secretary with the records of the meeting. I have received the scrutineer's report on attendance at the meeting. The scrutineer's report indicates that at least 2 persons entitled to vote at the meeting and holding in aggregate at least 25% of the shares entitled to be voted at the meeting are attending the meeting themselves or by proxy. Consequently, the quorum requirements in the company's bylaws are met. A copy of the scrutineer's report in attendance will be filed with the records of the meeting. Before moving to the proposed resolutions, I will explain the voting procedures. Each shareholder entitled to vote is entitled to 1 vote per share with respect to all matters to come before the meeting.

Registered shareholders and duly appointed proxy holders will be asked to vote on each business item through a single electronic ballot after all business items have been presented. When you are asked to vote, you will be prompted to vote on the Lumi virtual platform. You will only have a certain amount of time to do so after you have registered your votes for all business items, the transfer agent will compile the results. Proxies received before this meeting allow management of the company to cast a significant number of votes. Based on the number of shares represented at this meeting, the members of management here with me today will be able to determine the outcome of all motions that will go to a vote today.

As such, in order to keep the pace of the meeting, I may declare motions carried even though all the votes may not yet have been counted or a final report may not yet be available. To further expedite the meeting, Mr. Dax Dasilva as a shareholder of the company, has agreed to move all motions on the formal agenda today in advance. And Mr. Dan Micak, a shareholder of the company, has agreed to second those motions in advance. As such, all motions have been duly moved and seconded in advance to ensure an efficient meeting. I now declare that this meeting was properly called for the transaction of business. Our first item of business is the presentation of the company's audited consolidated financial statements for the fiscal year ended March 31, 2026, as well as the auditor's report thereon.

These financial statements and the auditor's report were included in the company's annual report and were made available to shareholders under our profiles on SEDAR+ and EDGAR on May 21, 2026, and on TSX Trust Company's online platform on June 26, 2026. I would ask the secretary to include the audited consolidated financial statements for the fiscal year ended March 31, 2026, and the auditor's report thereon in the minutes of this meeting. Please note that we will entertain any questions with respect to the financial statements in the general question period only. We now move to the next item on today's agenda. The second item of business is the election of Lightspeed's directors.

The Board of Directors has determined that the number of directors to be elected at this meeting shall be 7. The term of office of the directors to be elected at this meeting begins today and shall continue until the next Annual Meeting of Shareholders and until such time as successors have been duly elected or appointed. The management information circular contains information on all 7 nominees recommended for election as directors. All of the nominees are currently members of our Board of Directors. Registered shareholders and duly appointed proxy holders may vote for each proposed director nominee individually.

Each of the following nominees for election has been duly nominated to act as a director of the company. Dale Murray, Dax Dasilva, Nathalie Gaveau, Glen LeBlanc, Sameer Samat, Odilon Almeida and myself, Manon Brouillette. The affirmative vote required for electing each of the proposed nominees as directors is a simple majority of the votes cast at the meeting. Each of the person nominated has confirmed that he or she is prepared to serve as a director if elected by the shareholders, and each of the nominees qualifies under the provisions of the Canada Business Corporation Act and the bylaws of the company to serve as a director.

The company has not received any notice of other nominations of persons for election as a director of Lightspeed pursuant to the company's bylaw relating to advanced director nominations. As such, I hereby declare the nominations closed. As mentioned at the beginning of this meeting, voting today will be conducted by a single electronic ballot. We will, therefore, continue with the next item of business. The third item of business is the appointment of the auditors of the company for the coming year and the authorization of the directors of the company to fix the remuneration of the auditors.

The Audit Committee and the Board of Directors recommend the reappointment of our incumbent auditors, PricewaterhouseCoopers LLP as the auditors of the company for the coming year. It has been duly moved that PricewaterhouseCoopers LLP be appointed auditors of the company until the next Annual Meeting of Shareholders and that the Board of Directors be authorized to fix their remuneration. The fourth item of business is the nonbinding advisory resolution on the company's approach to executive compensation.

The company is committed to ensure that shareholders fully understand the objectives, philosophy and principles that the Board has applied in its approach to executive compensation decisions and to providing clear and comprehensive executive compensation disclosures to shareholders. The full text of the resolution to be adopted by the shareholders of the company is set forth on Page 21 of the Management Information Circular. As set out in the management information circular, in order for the resolution to be passed, it must be approved by at least a majority of the votes cast by the shareholders attending this meeting or represented by proxy. Since this is an advisory vote, the results will not be binding.

However, the Board and the Compensation, Nominating and Governance Committee will take into account the outcome of the advisory vote when considering future executive compensation decisions. It has been duly moved that the advisory nonbinding resolution of the company's approach to executive compensation be approved. The fifth and last matter to be acted upon is the ordinary resolution of shareholders of the company approving an amended -- an amendment to the company's amended and restated Omnibus Plan to extend the term of such plan to the 10th anniversary of the meeting and to renew such plan to approve all unallocated options, rights and other entitlements thereunder.

The full text of the resolution of shareholders to be approved is set forth on Schedule D of the management information circular and the background and rationale for such approval is set forth on Page 22 to 24 of the management information circular. As set out in the management information circular, in order for the resolution to be passed, it must be approved by at least a majority of the votes cast by the shareholders attending this meeting or represented by proxy. It has been duly moved that the ordinary resolution in respect to the company's Omnibus Plan is approved.

We will now proceed with voting on today's business items, namely the election of 7 directors to sit on the Board of Directors of the company, the appointment of the auditors of the company, the nonbinding advisory resolution on the company's approach to executive compensation and the ordinary resolution in respect to the company's Omnibus Plan. You will now be prompted to register your vote in respect of these business items. Please register your votes by accessing the voting page when prompted and pressing on for, withhold or against buttons as applicable next to the name of each business item. Please note that there is no submit button.

Votes are received as soon as the button next to a decision item is selected. Once the electronic balloting closes, the voting page will disappear. We will wait a few moments for the completion of the electronic ballots and then vote on with the rest of the meeting -- move on with the rest of the meeting. We will provide registered shareholders and duly appointed proxy holders approximately 2 minutes to complete the electronic ballots. Once voting is completed, I would ask that the scrutineers compile the report regarding the results of voting on all business matters. We will reconvene a few moments with the scrutineers' report and the voting results.

[Voting]

Thank you for waiting. I have received the scrutineer's report and confirm the following: each of the 7 nominees have been elected as directors of the company to serve until the next Annual Meeting of Shareholders or until their successors are elected or appointed. The appointment of PricewaterhouseCoopers LLP as the auditors of the company has been approved, and the Board of Directors has been authorized to fix their remuneration. The nonbinding advisory resolution on the company's approach to executive compensation has been approved.

The ordinary resolution in respect to the company's Omnibus Plan has been approved. The formal item of business as set out in the notice of meeting has now been dealt with. With the consent of the meeting, as there is no further business to come before it, I will hereby declare the formal portion of the meeting to be concluded. At this point, management will give a brief presentation and then answer any questions registered shareholders or duly appointed proxy holders may have.

I will invite our Chief Executive Officer, Dax Dasilva, to give the presentation.

Thank you, Manon, and welcome, everyone. Thank you for joining us today. Fiscal 2026 was the first year of our multiyear transformation, and the organization underwent significant change. But one thing that remained constant was our mission as a company. That mission is to fuel retail and hospitality ambitions with technology and insights. For the innovators and visionaries shaping the future of retail and hospitality, Lightspeed makes work flow so they can focus on what matters, running and growing their business. And when local businesses succeed, communities everywhere are stronger.

This is a mission of which I'm very proud and one that underpins all of our efforts at Lightspeed. In late March of 2025, we outlined our refreshed strategy and financial goals at our Capital Markets Day. Lightspeed is concentrating its efforts on 2 growth engines where we have demonstrated right to win. Specifically, these are retail customers in North America and hospitality customers in Europe. Elsewhere, we are focused on efficiency, continuing to support existing customers and maximizing adjusted EBITDA and adjusted free cash flow for the whole business.

This more focused strategy resulted in purposeful investments across both product and go-to-market. These investments are paying off as fiscal 2026 saw us expand our customer locations, deliver the best GTV growth in 3 years and generate positive adjusted free cash flow for the entire year. It is clear that the strategy is working. Our goal now is to execute that plan to its fullest potential. Fiscal 2027 is year 2 of our transformation and will be focused on executional rigor.

Retail in North America is where we serve SMB merchants with complex workflows with our deep vertical expertise and differentiated tools, especially in wholesale ordering and inventory management. Hospitality in Europe is a fragmented market where Lightspeed is already a leader with workflow automation, differentiated product capabilities, local support and solutions that enable fiscal compliance, serving restaurants across Europe.

We have also actively refined our customer mix, moving intentionally away from low-value micro merchants to focus on complex growing SMBs where we have the highest product market fit and the strongest customer lifetime value. We maintain 3 operating priorities that we use to measure our progress. Firstly, customer locations within our growth engines. For the full year of 2026, customer locations in our growth engines grew by 11%. We have recently launched a more targeted outbound sales motion and vertical-specific marketing approach across our growth engines, and we are already seeing encouraging signs of success.

With new rep training, playbooks, tools and processes now in place, we expect this renewed go-to-market discipline alongside a reinvigorated partnerships effort to be a meaningful driver of customer location growth in the quarters ahead. Priority 2 is to increase software ARPU. In 2026, subscription revenues were up 8% year-over-year. Through product innovation, upselling our customer base, attracting higher GTV customers and monetizing platforms like Lightspeed NuORDER, we will continue to drive software adoption higher. We have also been relentlessly focused on enabling a better customer experience from onboarding to service and have formed a central customer organization that is driving best practices to improve retention and expansion efforts. And the third priority is to improve adjusted EBITDA and free cash flow.

In fiscal 2026, gross profit dollars grew 17% year-over-year. Adjusted EBITDA improved to $72.5 million, up 35% year-over-year. and we delivered positive adjusted free cash flow of $18.2 million. We are improving our efficiencies across the company so we can focus our resources on investments that ensure the highest ROIs. We are also reviewing our spend while advancing automation through new tooling and systems and anticipate being able to deliver meaningful improvements this year.

Aside from our strong financial performance, we also took other steps to advance our transformation. We welcomed 3 seasoned executives to our leadership team, including Gabriel Benavides as our Chief Revenue Officer; Bhawna Singh as our Chief Technology Officer; and Leslie Martin as our Chief Strategy and Transformation Officer. These leaders are already making a difference, driving relentless focus on executional delivery across our organization. In addition, shortly after the year-end, we divested our noncore Upserve product line.

This divestiture is a clear proof point of our capital allocation discipline. By shedding an asset outside of our highest return growth portfolio, we have simplified operations, improved our structural gross margin profile and unlocked capital to deploy directly back into our business and shareholder returns. After that divestment, Lightspeed is a more focused organization with growth engines now comprising approximately 75% of revenues. I want to address the topic that has become pervasive in our industry, AI. Although its full potential has yet to be realized and its impact highly debated, there is no doubt that AI will change how we work and live, particularly within the software industry.

Some fear its impact, others welcome it. For Lightspeed, AI represents a tremendous opportunity to deepen our competitive advantages, help our customers and drive growth. Every restaurant or retailer has a context and complexity unique to their business. AI can help them solve problems that were previously too tough or too expensive to address, but it needs deep native foundational data to do so. Lightspeed is in a unique and advantageous position because we have the data derived from billions of dollars in transactions to build AI agents that can solve complex issues at scale. Deploying AI to help our customers is not theoretical, it is in the field here and now.

Whether it is providing seamless onboarding, creating which products to carry in inventory, building an online presence or receiving on-the-fly reporting and insights, Lightspeed's AI releases are already delivering results, and I believe we are only getting started. I'm working closely with our new CTO, Bhawna Singh, to advance our ambitions here and seize the opportunity in front of us. Before I close, I wanted to highlight that we have also made significant efforts to return capital to shareholders.

Between April 2024 and March 2026, we repurchased and canceled approximately 18.7 million shares using $220 million in capital. Further, our Board authorized the renewal of our normal course issuer bid program for FY '27 to repurchase up to 10% of our public float. In the first quarter of 2027, Lightspeed purchased a further 7 million shares. In closing, I would like to thank our investors for their ongoing support.

We recognize that confidence will only be earned through consecutive quarters of predictable delivery. Year 2 is a critical inflection point. In FY '25, Lightspeed made key decisions on where we will play and how we will win. In fiscal 2026, we demonstrated that our plan is working. In this year, we plan to focus on execution and delivering to our fullest potential.

With that, I will take any questions.

Thank you, Dax. I will now answer any -- we will now answer any questions registered shareholders or duly appointed proxy holders may have. For each written question we answer, we will summarize the question and read out loud the name of the person who asked such question and if applicable, the entity that person represents. For each verbal question we answer, we will introduce the speaker by stating the name of the person who will ask the question and if applicable, the entity that person represents. We would like to remind you that questions which were already answered or that are repetitive will not be answered.

Please limit your questions to topics of general interest for shareholders of Lightspeed. When asking your question, please state your name, the entity you represent, confirm you are a registered shareholder or a duly appointed proxy holder and indicate to whom your question is addressed. We will now give attendees a moment to ask questions. There being no questions, we are now concluding the question-and-answer portion of this meeting. On behalf of management, our Board of Directors and our employees, I would like to thank everyone for being here today. I would also like to thank all of our shareholders for their commitment and continued support. We look forward to next year's meeting.

On behalf of the Board, our employees and upper management, I would like to thank you for being here today. Thank you to our shareholders for your continued support. We look forward to seeing you again next year.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for standing by. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed First Quarter 2027 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Gus Papageorgiou, Head of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q1 2027 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Ash Bakshani, Lightspeed's CFO; and Gabriel Benavides, Lightspeed's Chief Revenue Officer. After prepared remarks from Dax and Asha, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our first quarter fiscal 2027 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated.

With that, I will now turn the call over to Dax.

Good morning, everyone, and thank you for joining us. Before we get started, I would like to welcome Lightspeed's Chief Revenue Officer, Gabriel Benavides, on the call today. Six months into his new role, Gabe is having a tremendous impact on our go-to-market efforts. He's already signed one of the largest partnership deals in the company's history, brought on strong new talent and restructured our entire go-to-market team.

I thought it would be helpful to update in our Q&A session, so you can hear about our go-to-market momentum directly from him. Fiscal 2027 started off strong for Lightspeed with the company surpassing its revenue outlook. In Q1, on an organic year-over-year basis, we delivered revenue of $323 million, up 17% and gross profit of $139 million, up 12%.

Adjusted EBITDA of $18 million came in within our outlook range. Software growth accelerated to 8% and payments penetration was very strong at 44%, up from 40% a year ago on an organic basis. Our performance was driven by strong execution in our growth engines, where we saw total revenue up 20%, GTV up 14%, customer locations up 10% and payments penetration at 49%, up from 45% last year.

Thanks to our healthy performance and growing confidence in our strategy and operations, we returned approximately $86 million through share repurchases in the quarter as part of our commitment to return capital to shareholders. Last year, we launched our refreshed strategy, sharpening our focus and concentrating our product and go-to-market resources on our 2 growth markets, retail in North America and hospitality in Europe.

With the foundations of that transformation now firmly in place, year 2 is about pressing our advantage and executing with even greater discipline to drive stronger results. I'll walk through the progress we made this quarter and lay out some of the initiatives we're driving to accelerate our performance further. As always, I'll organize my comments around our 3 stated priorities: one, growing customer locations in our growth engines; two, expanding subscription ARPU; and three, improving adjusted EBITDA and free cash flow.

Let me start with customer locations and our growth engines. Total growth engine customer locations increased by approximately 10% year-over-year to a total of 99,000. Our strategy to create durable growth by focusing on higher-quality agreements with ICP customers extends to our partner ecosystem. In Q1, a legacy white label partnership agreement was terminated, resulting in the removal of approximately 500 low ARPU locations from our customer base.

Total customer locations, including growth and efficiency markets, were 146,000 at the end of the quarter after giving effect to the divestiture of the noncore Upserve U.S. hospitality product line. We remain focused on winning more sophisticated, multi-location SMBs with complex needs. The customer is best positioned to take advantage of Lightspeed's full software suite.

Examples include a [indiscernible] boutique, which required advanced inventory management across multiple locations in Texas and Synergy Sportswear, which operates 7 locations and was already a user of NuORDER by Lightspeed before recognizing the benefit of the Lightspeed POS with wholesale built right in. Attracting existing NuORDER customers to the Lightspeed POS has become a leading driver of new retail customer locations for our recently expanded outbound sales teams.

Also during the quarter, we are pleased to add brands, including Lafayette 148, Slowtide and Head Golf to NuORDER, providing them with a modern collaborative wholesale experience while enhancing their product discoverability across thousands of Lightspeed retailers.

As we continue to expand the number of brands on NuORDER, we deepen the value of our Lightspeed wholesale network for retail customers by making it easier to discover and purchase from the brands that matter most to them, all within a single platform. This strengthens our flywheel. More brands attract more retailers and more retailers attract more brands.

In Europe, we continue to build on our leading position in hospitality, driven by a product offering and go-to-market motion that we believe are unmatched. We added 19 locations of the Dutch chain Vlaamsch Broodhuys, which needed a platform that could support table service, bakery and kitchen workflows while centralizing management.

Our product strength was reinforced by our robust partner ecosystem and advantage that carries across our European markets. In the U.K., we welcomed 17 locations of Afrikana Peri Kitchen and Grill, a growing African-inspired restaurant chain. Golf also remains a strong vertical for Lightspeed. This quarter, we signed Encore Leisure Group, 16 locations across the U.S. and the prestigious Royal Latem Golf Club in Belgium. Combining our 2 flagship platforms, Lightspeed Retail and Lightspeed Restaurant allows us to address this highly lucrative and significant growth market.

High-quality customer growth remains one of our top priorities, and we've launched several new initiatives to sharpen how we target, onboard and support the right customers for Lightspeed. The first is improving seller productivity. By modernizing our go-to-market systems and processes, rolling out better training and enablement and optimizing our organizational structure, we expect to increase seller productivity, which will allow us to drive revenue growth without scaling costs at the same rate.

In addition, we are refreshing our partner and channel strategies. Strengthening and growing our ecosystem will help drive efficient revenue growth by expanding product availability, driving more value for our customers, partners and Lightspeed while improving retention and lowering churn.

Turning to software revenue and ARPU. Organic year-over-year software revenue growth accelerated from 6% last quarter to 8% this quarter. It was encouraging to see software growth accelerate this quarter, driven by continued efforts on upselling, sharper focus on ICP customers, a stronger end-to-end customer journey and a continued stream of new software features.

In this quarter, we continue to deliver new innovations across our flagship platforms of Lightspeed Retail and Lightspeed Restaurants, which is key for long-term software ARPU growth. In retail, we launched more AI enhancements, enabling our merchants to build blogs and websites faster and drive more traffic to their sites.

Our new Klaviyo integration saves time building personalized marketing campaigns. And we simplified the omnichannel experience, enhanced Lightspeed scanners in-store checkout and rolled out better visibility into orders, revenue and the most popular SKUs on NuORDER by Lightspeed. In hospitality, the latest upgrades to Lightspeed AI allow merchants to simply ask a question and get instant reports, charts and insights about their restaurant as well as manage operational checklists.

And for multi-location restaurants, our new locations manager manages menus and sync updates across every venue in just a few clicks. Our AI features have been well received by our customers. Of all the latest releases on Lightspeed Restaurant, Lightspeed AI is tracking as one of the fastest adopted by users, signaling an opportunity to expand agentic capabilities for restaurants. We are moving away from AI that just answers questions to specialized agents that can help run your business, to AI that can interpret and analyze data to actively suggest actions that can grow revenues or cut costs, such as reordering inventory of popular items, marking down inventory that is not selling and switching suppliers when prices increase.

Imagine that our merchants could hire someone with decades of knowledge about what makes their business succeed. We have that data and that knowledge and our AI improvements are making it more accessible to our customers. We believe no one is better positioned to deliver AI-powered solutions that can help our customers run and grow their businesses.

Our SMB and mid-market merchants priority is to build better businesses, not build their own software. Now turning to profitability. Ash will take you through the numbers in detail. But overall, I want to stress that in the second year of our transformation, we are very focused on improving profitability and in particular, increasing free cash flow. Our revenue growth remains strong, delivering on our profitability goals [indiscernible] to disciplined execution.

To that end, we have undertaken some key initiatives. We are continuing to rationalize all of our costs across the organization. The deployment of AI tools and a more focused strategy have allowed us to concentrate our efforts and improve productivity. This has led to lower headcount requirements, particularly in product development. We've also stepped up our efforts to monetize our back book, which was a driver of our improvement in payments penetration, which reached 44% in Q1, up from 40% a year ago on an organic basis.

Within our growth engines, payments penetration was even higher at 49%. Driving more revenue from existing customers is a significant opportunity to scale the business efficiently. The entire executive team and I are focused on improving our profitability and cash flow, which we see as essential to creating long-term shareholder value.

With that, I will turn it over to Asha.

Thanks, Dax, and good morning, everyone. Our first quarter results reflect a strong start to fiscal 2027. I want to highlight 3 key trends we saw in the quarter. First, the underlying drivers of profitability were strong. Software and payments gross margin continued to improve. Software gross margins of 83% were up year-over-year from 81% in the same quarter last year, and transaction-based gross margins grew to 32% from 31% on an organic basis or 29% a year ago as reported.

Second, our efficiency markets delivered stronger growth this quarter. Those markets saw organic revenue growth in the high single-digit range, which helps to improve our overall growth profile. Finally, payment penetration was 44% this quarter, driven by healthy uptake from new customers and continued conversion of our back book. Within our growth engine, payments penetration was up 49%.

Our growth engines represent approximately 75% of revenue, and that mix shift bodes well for long-term payments penetration. Overall, we believe there is significant runway for payments penetration to continue to grow in the coming years. I will discuss the quarter in more detail and then provide our outlook for Q2 and fiscal 2027.

For year-over-year comparisons, I will reference organic figures that normalize the impact of the Upserve divestment. Total revenue grew 17% to $322.7 million, exceeding our outlook for organic growth of 10% to 14%, driven by growth in high GTV customer locations, higher software ARPU and increased year-over-year payments penetration. Notably, revenue in our growth engine increased 20%. Software revenue for the quarter was $95.4 million, up 8% year-over-year and up 12% in our growth engine.

Software ARPU increased 6% year-over-year, up from 4% last quarter. Software growth accelerated versus last quarter, driven by a higher location count in our growth engines, successfully landing high GTV customers who adopt more software and a continued focus on upsell across our back book. We also saw a much larger mix of annual deals this quarter versus the same quarter last year.

Transaction-based revenue for the quarter was $214.5 million, up 20% year-over-year. Gross payments volume also grew 20% year-over-year. GTV as a percentage of GTV came in at 44%, up from 40% in the same quarter last year on an organic basis. Our high-margin capital revenue had standout performance and grew 56% year-over-year. Customers who take Lightspeed Capital exhibit significantly lower churn and generate higher lifetime value. Growing this high-margin offering is a key priority for the business.

Overall, Q1 GTV grew by 9% to $25.7 billion. We saw positive same-store sales overall with particular strength in retail. Within our growth engines, GTV grew by 14% year-over-year. Total monthly ARPU reached approximately $676, up 13% year-over-year, driven by both higher software and payments monetization. With respect to our efficiency market, revenue growth was in the high single-digit range, supported by strong payments adoption. Payments penetration in our efficiency market was 32% in the quarter, well below the overall business, which gives us meaningful room to grow payments revenue.

Turning to profitability and operating leverage. For year-over-year comparisons, I will continue to reference organic figures that normalize for the impact of the Upserve divestment. Total gross profit for the quarter grew 12% year-over-year, driven by strong top line performance across both subscription and transaction-based revenue.

Total gross margin for the quarter was 43% compared to 45% a year ago on an organic basis. The decline was partially due to mix as transaction-based revenue increased to 67% of revenue from 65% in the same quarter last year. In addition, hardware gross margins declined due to supply chain constraints that resulted in higher freight costs. This is not a structural issue, and we are implementing programs to improve our hardware supply chain management.

We expect hardware margins to improve in the second half of the fiscal year. Software gross margin was 83%, up from 81% a year ago. This improvement was largely driven by AI resolving 80% of our support ticket, reducing our cost of support and service delivery and driving efficiencies. Gross margins for transaction-based revenue were 32%, up from 31% a year ago on an organic basis. This improvement reflects increased payments penetration in our international markets where margins exceed those in North America and growth in our Lightspeed Capital revenue.

As we convert customers to Lightspeed Payments, we increased our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grow by 23% year-over-year. For operating expenses, adjusted EBITDA, adjusted free cash flow and share-based compensation, the year-over-year comparisons are on an as-reported basis. Total adjusted research and development, sales and marketing and general and administrative expenses grew 7% year-over-year. This is primarily driven by investment in field and outbound sales. At the same time, we are taking actions to improve productivity.

In addition to rationalizing headcount, we are expanding our self-onboarding program for certain customer cohorts, which will fully automate onboarding and improve the overall merchant experience. Initial efforts have already delivered improved conversion at lower costs, and we are scaling this program further. Adjusted EBITDA in the quarter was $17.5 million, up from $15.9 million in Q1 last year, driven by continued execution against our strategic shift and our focus on AI and automation to improve operating efficiency.

It is noteworthy that divesting Upserve means that our fixed costs are absorbed over a lower revenue base. This impact will be offset by our growing revenue base, along with our efforts to reduce costs. As a percentage of gross profit, adjusted EBITDA was 13%. Our fiscal 2028 goal is for adjusted EBITDA to be at 20% of gross profit. Our net loss was $2.4 million or a loss of $0.02 per share compared to a net loss of $49.6 million or a loss of $0.35 per share a year ago, thanks to improved gross profit and having now fully amortized our acquisition-related intangibles.

Adjusted free cash flow was negative $4.4 million in the quarter, which was impacted by working capital movements. The prior year period reflects the full quarter's contribution of Upserve to cash flows, whereas the current period reflects Upserve only up to its divestiture on April 28, 2026. We remain confident that the actions we are taking to grow quality locations and revenue while finding significant operating efficiencies have us on track to meet our 3-year free cash flow target of $95 million for fiscal 2028.

For fiscal 2027, we expect free cash flow to show significant growth over fiscal 2026. We continue to actively manage share-based compensation and related payroll taxes, which were $12.7 million for the quarter versus $14 million in the prior year quarter and declined as a percent of revenue versus Q1 last year from 5% to 4%. With respect to capital allocation and our balance sheet, our balance sheet remains very healthy. We ended Q1 with approximately $372 million in cash, down from $454 million in March.

That reduction was driven by discretionary actions to return capital to shareholders and reduce the dilutive impact of share-based compensation. In the quarter, we spent $66 million to buy back and cancel 7 million shares, reducing our issued and outstanding share count by 4% year-over-year. We also used $21 million to repurchase shares in the open market to fund future share award settlement obligations, which limits dilution upon settlement.

In addition, we received approximately $19 million from the sale of Upserve in the quarter. We will continue to be opportunistic with our remaining share buyback authorization. Approximately $150 million remains under our broader Board authorization to repurchase up to $400 million in Lightspeed shares. Aside from the potential share buyback, our largest use of cash will be the continued growth of our merchant cash advance program.

There were $115 million in MCEs outstanding at the end of the quarter, and we intend to continue expanding this high-margin program over time. As we grow the program, we remain disciplined in our underwriting and default rates have stayed consistent in the low single-digit range, which gives us confidence to continue expanding.

Overall, our balance sheet remains strong and positions us well to continue executing against our strategic priorities. Now on to outlook. For fiscal 2027, our existing outlook remains unchanged and consistent with the company's 3-year target for gross profit, adjusted EBITDA and adjusted free cash flow presented in our Q4 earnings release in May 2026.

For fiscal 2027, we expect total revenue of $1.225 billion to $1.265 billion, representing organic growth of 12% to 15%. Total gross profit of $565 million to $585 million, representing organic growth of 12% to 16%; adjusted EBITDA of $75 million to $95 million. For Q2 of fiscal 2027, we expect total revenue of $316 million to $326 million, representing organic growth of 12% to 16% total gross profit of $141 million to $146 million, representing organic growth of 10% to 14% and adjusted EBITDA of $20 million to $25 million. With that, we will now take your questions.

[Operator Instructions] Your first question comes from the line of Dan Perlin of RBC.

Ash, I just had a question in terms of subscription growth accelerated to 8% versus 6%. So that was really encouraging. And the ARPU was up about 6%, I think. So just trying to make sure I understand like the slight gap between the 2? And then how do you think about the timing of closing that over the next couple of quarters?

Thanks for the question, Dan. When we think about subscription revenue, super happy with what we're seeing there going from 6% to 8%. There are lots of puts and takes in the ARPU numbers, as you can imagine, timing, the type of locations we're bringing on board. As we're bringing more and more large GTV locations that take more of the Suite Lightspeed has to offer, we should continue to see that software ARPU growth align better with the total revenue acceleration on software.

Okay. So it's kind of mix and timing of types of locations that are getting onboarded. Got it. Just a quick question on AI, and maybe it's a little early to even draw distinctions here. But like as the product increasingly embeds AI solutions, how do you think about managing the cost of AI? And is it priced like a token cost plus a margin for the clients? Because the question is really as clients start to utilize it, there's an opportunity, I guess, for your cost structure to have some controls on it. And I'm just wondering how you're thinking about managing that.

Yes. I think like when it comes to the product, we're being pretty judicious on what kind of models we use for different kinds of tasks. You do not need to use a frontier model for a lot of the things like the AI is doing in retail and hospitality. And and there's a lot of options now. The team is doing a lot of experimentation, and it's really helping us manage costs that we can make sure that we have great software uplift from our AI tools that we have planned as we build more agents that are specialized in our product to handle everything from inventory to operations management. But yes, you do not need high token cost frontier models to be doing all of those kinds of tasks. You can get great insights and actions out of agentic-driven software without leveraging frontier.

Your next question comes from the line of Dominic Ball of Rothschild & Company Redburn.

Nice organic GTV numbers. So a kind of similar question to that in terms of some of your peers have started to directly monetize their AI products, for example, like Toast IQ Grow. Lightspeed has Lightspeed AI. It will be great to understand kind of how many merchants are currently adopting this and then the potential to monetize that going forward as well?

Yes. I think in hospitality, where we launched our AI products first, this is the fastest uptake of any module that we've ever seen in our history. We have a really high percentage of folks adopting the AI tools. If you think about merchants in our SMB to mid-market space, the ability for them to query the product for the charting, the insights, the reporting that they need rather than try to understand a reporting interface to build custom reports, I mean, it's very appealing. And so that's very encouraging because adoption usage means that we have in the future pricing power, and we can add more AI and agentic tools across our pricing tiers. We haven't done that to date, but we're gathering the data to be able to do so.

Your next question comes from the line of Thanos Moschopoulos of BMO.

Can you speak to your hiring plans and sales for the upcoming year? It sounds like a lot of the focus will be on improving productivity of the existing force and is the hiring slowing down as far as bringing on new bodies? Or what's your thoughts on that?

Yes. Dennis, thank you for the question. I'll take this one. This is Gabe Benavides, glad to be here, Chief Revenue Officer at Lightspeed. A couple of things. As Dax mentioned, on one side, we've already welcomed new sales leadership to Lightspeed that brings with them tremendous experience and depth of expertise in just the right areas.

As regards to our sales capacity, really, our capacity build-out is largely behind us, and our growth ambitions are largely within reach with our existing capacity as long as we successfully pivot to a real focus on seller productivity, which is where we're spending a lot of our time and focus right now.

Great. And then you commented on expanding the partner ecosystem, spending more time on the partner strategy. Can you stand on that as well in terms of some of the areas of opportunity there?

Yes, absolutely. Another great question. Really 2 big parts to take note of. One, deeper collaboration with our biggest and most important partners. We recently announced a deep integration with Meta and the partnership with Claudio is being extended as well. And maybe more to the point, a real focus on monetizing the connectivity layer and our tremendous base of customers. That creates bidirectional monetization opportunities for Lightspeed in our great partner ecosystem. And of course, it directly creates greater customer value as well.

Dax, in the prepared remarks, we mentioned signing the largest -- one of the largest deals in our partner history this past quarter, and that was directly related to that second part of the strategy refresh.

Your next question comes from the line of Matt Coad of Truist.

Just wanted to ask about the net location adds and the growth engines that came in a little bit quarter-over-quarter. I was kind of curious if maybe the World Cup had an impact, maybe there were some delayed integrations, anything like that? And then any detail that you can give on kind of like seasonality or expectations for net location adds for the rest of the year would be helpful.

Yes. So we added approximately 1,300 net new locations in the quarter. The first quarter is a bit seasonally a lighter quarter than, for example, Q4. And we had a removal of some locations from a white label agreement that we terminated. Yes, I think it's -- we're focused primarily on quality locations. I think there's the seller productivity efforts, but there's also how we're getting the right locations for Lightspeed that's a good fit with our product lines. And so you see location growth that still at 10% within our CMD goal of 10% to 15% as a 3-year CAGR, but you also see software growth growing, right? So it's the higher quality locations that we're focused on.

Super helpful, Dax. And then just a quick follow-up. Any commentary on the path forward for the hardware gross margin? I know there's a lot of moving pieces with discounting and go-to-market efforts and memory costs that we all have to take into consideration here. So any help would be helpful.

Yes. Thanks for the question, Matt. We are seeing some compression in hardware margins coming from the temporary supply chain constraints that we mentioned. We have put some guardrails in place, and we genuinely believe that's going to bring those margins back to more normalized levels in the back half of this year. I think what we need to keep in mind, Matt, is that the hardware investments, the way we look at that is a means to a specific end, expanding high-margin payments and software.

It is working. We saw GPV grow 20% organically. PayPen reached 49% in our growth engines, which is an all-time high for us. And more importantly, our core software gross margins expanded to 83%. So we see these hardware investments as onetime. We do expect the margins to improve in the back half of the year as these guardrails that we put in place start coming to fruition. But overall, we really don't see hardware capping long-term margins. It's only about 4% of our revenue. And so the programs that were launched -- that we've launched will improve these economics in the back half of the year.

Your next question comes from the line of Tien-Tsin Huang of JPMorgan.

Just on the sales productivity, just going back to that. Just curious around quota attainment and if there's been any changes in the quota or commission structure overall? Has that been progressing as planned? Just curious if there's been any pivoting there.

Yes, great question. I won't share too many specifics around targeting or commissions. We've got a pretty broad audience in the call. But I can tell you, as we shifted the focus to seller productivity, the early signs are quite encouraging. We're already seeing, for example, in our pipeline, deals of a size and scope emerge that we haven't really seen before without breaking the great velocity that we tend to have here at Lightspeed as well.

Got it. That's good to hear. And just for Asha, maybe just on the -- I just want to make sure I heard positive same-store sales overall. It does seem like the spending environment has been pretty good in the geographies that you're in. Any surprises would you call out and sort of been thinking around the second half of the year, has your thought process changed there on just macro spend?

Yes. Thanks, Tien-Tsin. No, you know what we are -- like we mentioned in the prepared remarks, we're seeing a very strong macro, pretty solid macro across North America retail and EMEA hospitality. We saw total GTV up 14% in the growth engines. The same-store sales, if I double-click on retail, our largest verticals, bikes, sporting goods, golf, jewelry, all had double-digit or close to double-digit growth year-over-year. When we look at EMEA hospitality, we also see very solid growth. We saw the euro temper a little bit in the -- towards the end of the quarter. I mean you're hearing that from others as well, but really nothing that concerns us. We're feeling really good about the macro.

Your next question comes from the line of Martin Toner of ATB Cormark.

Can you kind of walk us through any reasons for gross margin weakness in the quarter? Was there anything transient? And what are your thoughts on gross margin for the rest of the year?

Yes. Thanks for the question, Martin. The gross margin, what you're seeing in the quarter, a couple of factors or dynamics. First and foremost, we're -- our payments transaction-based revenue is doing really well. We had a solid quarter, as you saw. Transaction-based revenue as that mix grows, that comes in at 25% to 30% gross margins depending on the region, North America lower and Europe and international higher.

So as that grows, you see more revenue coming in at the 20% to 30% gross margin. We're still feeling really good about 43% to 45% margins that we've put it in our long-term guidance. The only thing that I would say temporary transient is the hardware. We just talked about that. We did see some slight compression from normalized hardware margins that you would see from we saw slight compression in the recent quarters coming from supply chain constraints. We talked about that in the prepared remarks.

But we do definitely see this as something that's transient. We've put in some guardrails in place that we expect to see benefit us in the back half of the year and nothing that concerns us. These programs are launching and will improve these economics in the back half of the year. Overall, we feel really good about where we are on gross margins and where we're headed in the rest of this year.

Your next question comes from the line of Matt Bullock of Bank of America.

I was hoping if you could elaborate, maybe give us an update on the strategy for the opportunity ahead in driving payments penetration up within the efficiency market specifically? And then I have one quick follow-up.

Yes. I think -- thanks for the question. The strategy overall for payment penetration increase is very close when we look at our efficiency portfolio, which is fairly broad as with our growth engine portfolio. It's the opportunities to drive better payment penetration into our back book, and we're off to a great start for this year. And in a more targeted fashion in our efficiency portfolio and a very broad fashion in our growth portfolio, we're looking to increase attach rate, of course, on our front book sales as well.

[indiscernible] little more color. I think Dax mentioned this in the prepared remarks. We launched a couple of targeted, very specific initiatives for our back book base of customers. And I was going to mention that over the last few years, Lightspeed's payment capabilities, processing capabilities have really grown, and we've been a little bit quiet about those enhanced capabilities. We're bringing those to bear fully with full voice right now in the front book and back book, which really help drive growth in the efficiency portfolio.

Got it. And then just a quick follow-up on the termination of the white label agreement. Can you just remind us how prevalent those white label locations are across the base of locations? And then I would be interested to learn more if you can provide color on kind of what happened around that termination of the agreement.

Yes. I can take the first stab at this, Dax. Yes. Well, first, to your question, very, very few of these remaining in any way in the back book. I would say, negligible. So look at this truly as a onetime thing, and there's 2 big elements. This particular type of white label agreement didn't really fit our strategy going forward. We have a refreshed strategy around payments and certainly around partners, which we touched on. And so the termination -- the agreement was terminated and we both moved forward.

Your next question comes from the line of Timothy Chiodo, UBs.

This Question is most likely, I think, mostly for Gabe. But in the last year or so in terms of the U.S. retail competitive environment, there's really 2 changes that stand out at least to us. One is the revamped Genius product and the hiring of a few hundred more salespeople. And then on the Square side, Square is clearly pivoted to hiring field sales and then also working increasingly with the ISO channel. And I wanted to see if your teams have noticed the impact of these 2 competitors, how you're responding to that, if at all? And any other context you could give around the general competitive environment in the U.S. retail segment?

Yes. of course. Great question, great multipart question. So first, certainly a competitive environment. That is very true. I will say this, I believe a North American retail the customer that we are purpose-built to serve is underserved even with such a competitive environment. So our opportunity in North America is terrific, both near term and going forward, long tail, high ceiling.

And as I mentioned, our capacity build-out phase was not just concentrated in North America, but it's largely behind us. So we're really focusing on a pivot to productivity. As regards to the North American market, that's going to mean a little better, well, sharper ICP definition and focus and targeting, the value-based and unified approach to selling that Dax mentioned a couple of times in the prepared remarks to make sure that we are capturing that opportunity to the greatest extent possible. And so really for the foreseeable future, I'll call it, it's about better performance in our ICP opportunity in verticals within North America. There's a lot more, of course.

Your next question comes from the line of Andrew Harte of BTIG.

Following up on the prior question on the back book opportunity. I guess, can you talk about why you think now is the right time to go after the back book? And then when you think about getting those wins, what's the kind of gross profit uplift on a per customer basis? If you could talk about the sales motion there as well and any impacts on churn or the opposite adding customers?

Yes. Great question. I'll take the first part of this, maybe. As far as the timing, listen, I think that -- maybe I'll start here very quickly. There's a bit of a formula, I think, that we're adhering to at Lightspeed right now, which is being very purposeful at signing or bringing on board the right customer where our product depth regardless of market makes the biggest difference and our go-to-market economics tend to be the strongest, signing them to great deals with great deal economics and then retaining them over time and growing them as their business thrives, they should be adopting more and buying more from Lightspeed, both on a subscription basis and a transactional basis.

So all that said, we have 146,000 customer base, a tremendous opportunity for us to be very purposeful about driving value, bringing our terrific partner network and ecosystem to bear and increasing the monetization there. So really, I think the timing is right now and has been right for a little while and be right going forward. It's about purposeful execution, focusing on customer value. And that is at the center. Actually, it's a great question because that's the center of a lot of the changes that we've made over the past couple of quarters.

That's helpful. And then just on that, curious if there's any kind of uplift we can think about when you win it back with the customer. And then as my other follow-up question, the focus on cost rationalization. I know there was a comment that there was a lot of opportunity in the R&D line. It also looks like G&A ticked up in the first quarter as well on an adjusted basis. So -- so if you could just kind of help us think about the entire cost structure going forward.

Yes, sure. Thanks, Andrew. From -- I'll answer the margin question first. Gabe talked a lot about partnerships from a software perspective that gives us more to upsell. We see no reason why those deals wouldn't come in at the 83% software margins that you're seeing from us. I mean that's what we've seen to date. From a payments perspective, depending on whether they're in North America or international, the margins range from 25% all the way up to 40%. And as we get more and more of these back book customers on to payments, we should see them coming into our book at those margins as well. From a cost rationalization perspective, as you know, we are relentless about cost discipline inside the company. We actively manage our structure as a part of normal operations. Consistent with that approach, we recently reduced about 10% of our headcount in product and tech. We are being prudent with our resources.

This was all a part of our transformation, increasing our operational efficiency and fueling these smart reinvestments into the high-return growth initiatives is how we run the business. The last thing I'll say is, as you know, we've focused in North America retail and in EMEA hospitality. And that focus really helps us to sharpen our execution, and we are concentrating our investments in the areas with the highest return and removing work that's no longer a priority for us. So lots of really good work inside the company on cost rationalization, and we feel really good about where we're going there.

And I guess lastly, on the uplift part of your question, I think certainly, I would put it this way, this is -- these are the metrics to watch software growth especially within our growth engine portfolio, and that's -- you'll see -- that's the area to watch as we go through the rest of the year and beyond. And certainly, a lot of that will come from the back book strategies we're employing.

[Operator Instructions] Your next question comes from the line of Todd Coupland of CIBC.

I wanted to ask about location growth implied in the Q2 and 2027 guide. I think you said organic growth was 10% in Q1. What are you implying in the guidance for Q2 and 2027?

Thanks, Todd. From a location growth perspective, I think we're anchored around the Capital Markets Day CAGR we provided of 10% to 15%. There are puts and takes quarter-to-quarter because there is seasonality in our business. But we feel really good about that 10% to 15% CAGR. We were at 10% in this past quarter. All of the initiatives that Gabe and Dax talked about earlier are going to help to drive and even accelerate location growth and obviously, in particular, in our growth engines.

Your next question comes from the line of Suthan Sukumar of.Stifel.

For first one, I want to follow up on the channel. Can you speak a little bit about your priorities for the overall channel strategy? Is this really to double down in core areas or help you penetrate net new markets and customer verticals?

It's a great question. I'll take this one. Well, it's both. I think when I talk about the size of our opportunity being near term as well as long term, long tail, high ceiling, a lot of that immediate or near-term opportunity, it's both, but it comes from this back book. So we have such a terrific and broad partner ecosystem. I will share one of the very pleasant surprises that I had when I joined Lightspeed was just the number of partners that are really eager to work with us or expand their collaboration with us. And we have a real opportunity to drive customer value, which translates to revenue growth in our back book to drive improved retention in our back book, which, of course, contributes to all of the measures we watch as well. And then certainly, there's a front book co-selling opportunity as well. One of the things that we're looking at, as always, is as we expand our reach into additional markets nearer or longer term, we can really activate and leverage our great partner ecosystem to enter markets effectively, high yield, but low risk as well.

Okay. Great. Appreciate that color. Second question, I want to touch on capital allocation. Ash, I think you kind of talked about maintaining flexibility for the capital program. But curious, how do you -- how active you guys expect to be on share buybacks going forward? And what other priorities are you contemplating here from a capital allocation perspective?

Yes. Thanks for the question. We're pretty serious about returning cash to shareholders. We talked about the buyback. We bought back 7 million shares in Q1 of this year. We're about a little over 80% through the buyback that we just announced in quarter. We also purchased shares to help avoid on the open market share to prevent dilution from a shareholder perspective. So we are returning capital to our shareholders, and we are doing so from a position of strength. Even after repurchasing and canceling 7 million shares in Q1, we did end the quarter with over $370 million in cash.

We have no meaningful long-term debt and alongside positive free cash flow that we expect to generate this year. Outside of the merchant cash advance business, to be honest, with high-margin business, growing 56% year-over-year, super excited about where that's going. But outside of that, the -- for us, it's really about where are we investing for long term to deliver long-term shareholder value. And for now, that is really the merchant capital advance business and returning cash to our shareholders through buybacks.

That concludes our Q&A session. I will now turn the conference back over to Gus Papageorgiou for closing remarks.

Great. Thanks, everyone, for joining us today. Myself and the rest of the team will be around for the rest of the day if anyone has any follow-up questions, and we look forward to speaking to you on our next quarterly call. Thank you, and have a good day, everyone.

That concludes today's conference call. You may now disconnect.

Good morning, and thank you for standing by. My name is John, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Lightspeed Fiscal Fourth Quarter 2026 Conference Call. [Operator Instructions]

I would now like to turn the conference over to Gus Papageorgiou, Head of Investor Relations for Lightspeed. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q4 2026 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; and Asha Bakshani, Lightspeed's CFO. After prepared remarks from Dax and Asha, we will open it up for your questions.

We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions risks and uncertainties in our earnings press release issued earlier today, our fourth quarter fiscal 2026 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and it is not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system.

Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. With that, I will now turn the call over to Dax.

Good morning, everyone, and thank you for joining us. Fiscal 2026 was a pivotal year for Lightspeed. We pursued a disciplined strategy and focused our organization on the two areas where we have a proven right to win, retail in North America and hospitality in Europe. Results today show unequivocally, the strategy is working. Lightspeed delivered revenue and gross profit growth ahead of expectations and gained momentum in the crucial areas, customer location and GTV growth.

In Q4, we delivered another strong quarter with total revenue of $291 million and gross profit of $129 million, both up 15% year-over-year and coming in ahead of our previously established outlook. Adjusted EBITDA of $15 million was up 17% year-over-year. Our performance was bolstered by the strength of our growth engines, where we saw total revenue up 24%, GTV up 19% and locations up 11%. After the divestment of Upserve, our growth engines now comprise approximately 75% of total revenues, and we expect them to grow towards 80% during the course of fiscal 2027. Our accomplishments for fiscal 2026 were on track to meet the 3-year targets we initially presented at our Capital Markets Day in March of last year.

In the first year of our transformation, we delivered the following results relative to our CMD commitments. Gross profit growth of 17% versus a target 3-year CAGR of 15% to 18%. The gross margin of 43% versus a target gross margin of 42% to 45%. Adjusted EBITDA growth of 35%, in line with our target 3-year CAGR. 24% gross profit growth in our growth engines versus a target 3-year CAGR of 20% to 25% and 11% customer location growth within our growth engines versus a target 3-year CAGR of 10% to 15%. Underpinning these targets are 3 priorities that will drive long-term value at Lightspeed. These are: one, growing customer locations in our growth engines; two, expanding subscription ARPU; and three, improving adjusted EBITDA and free cash flow.

In Q4, we continue to make solid progress. Let me start with customer location in our growth engines. We added approximately 3,200 net new locations in the quarter, growing 11% year-over-year. Q4 marks the fourth quarter in a row where customer location growth has accelerated. Total customer locations, including growth and efficiency markets, grew to 150,000. We were very proud to welcome a host of new customers. Within retail, we added the luxury lifestyle brand, AERIN, with locations in New York and Palm Beach. We also added Oshima Surf & Skate, a multi-location Hawaii-based retailer and an avid user of Lightspeed wholesale. Lightspeed Wholesale connects retailers using our Lightspeed retail POS to brands using our NuORDER by Lightspeed platform. With this integration, retailers can discover and order over 5 million products from over 4,000 brands all on one platform.

In this quarter, we continue to add world-class wholesale brands such as Sorel, Nixon, Proenza Schouler and BBC International footwear to the Lightspeed wholesale ecosystem. Within Golf, we added RedWater Golf, which utilizes our specialized tools across 8 courses and 5 indoor simulators in Michigan. In European Hospitality, we are becoming the standard for full-service dining. We added 19 locations with Gaucho, the iconic Argentinian steakhouse chain across the U.K. [indiscernible] in London has also joined us to manage its complex 3-in-1 restaurant concept. And we added [indiscernible], the highly acclaimed modern Turkish restaurants in Berlin.

Turning to software revenue and ARPU. We continue to innovate across our flagship platforms of Lightspeed Retail and Lightspeed Restaurants, which is key for long-term software ARPU growth. Within Lightspeed wholesale, we launched an integration with Faire, a B2B marketplace that will give Lightspeed retailers direct access to over 100,000 lifestyle, home decor, apparel and jewelry brands. Also within Lightspeed Wholesale, we launched AI-driven brand recommendations in our recently released marketplace, which services personalized brand suggestions based on the buyer's profile expanding discovery and opening new revenue opportunities for brands on Lightspeed Marketplace. We also launched our AI-powered OCR tool that automates the tedious task of product data entry helping merchants onboard new inventory, reduce stock discrepancies and improve accuracy.

Within Lightspeed restaurant, we released AI menu imports, which significantly reduces the setup time for new restaurants by allowing business owners to easily digitize and upload venues using photos, online documents or even sketch notes. And the new promotion engine within Order Anywhere, our take-out and delivery offering with buy one get one free functionality, enabling restaurants to create time-limited offers to drive order volume and repeat visits. We also saw strong adoption of our more recent product launches. Almost 30% of our restaurant customers adopted Lightspeed Pulse, which provides live data on restaurant operations right to your mobile device. Since it's recent release, over 20,000 reservations were made using Lightspeed reservations. Approximately 20% of our target restaurant locations have now adopted Lightspeed Restaurant AI and the number of customers using retail insights has increased over 3x year-over-year. We add popular features to our top-tier plans that help drive higher software ARPU.

I am very proud of the innovations that have come out of our product teams this year, particularly around AI. Customers are using our AI agents to drive more productivity out of the Lightspeed platform by delivering tangible results such as getting started faster with seamless onboarding, curating which products to carry an inventory, building an online showroom or receiving on-the-fly reporting and insights to better understand business trends and opportunities. AI gives Lightspeed the capacity to deliver real product differentiation and sustainable competitive advantage.

Every restaurant or retailer has a context and a complexity that is unique to their business. AI helps them solve problems that were previously too tough or too expensive to address. But in order to do so, requires deep native foundational data to solve complex issues such as wholesale buying inventory management, omnichannel selling and business operations. We are in a very unique and advantageous position because we have the data derived from billions of dollars in transactions to build AI agents that can solve for these complex issues at scale. That secure, [ fiscalized ] and proprietary data, stating wholesale, the merchant and the consumer comes from businesses that operate in physical spaces and use Lightspeed POS solutions that integrate physical hardware and complex workflows seamlessly as their system of record. These businesses were engaged and onboarded by a scaled go-to-market motion specifically crafted to make them successful on our platform. No one is better positioned to deliver AI-backed solutions that can help our customers run and grow their businesses. In the end, our SMB and mid-market merchants priority is to build better businesses, not build their own software.

Now turning to profitability. In fiscal 2026, we achieved a landmark accomplishment as a company. For the full fiscal year, our operations generated $18 million in adjusted free cash flow, a milestone that underscores our commitment to profitable growth. I think this accomplishment is even more impressive when you consider that we did this while meaningfully scaling the business in our focus areas and launching a series of new product innovations, demonstrating our capacity for disciplined investment that results in enhanced financial performance. I also want to take a minute to highlight the changes we have made to our executive leadership within Lightspeed to drive the next phase of growth.

Gabriel Benavides joined us as Chief Revenue Officer. Gabe brings a wealth of experience in scaling global sales organizations and will be instrumental in refining our go-to-market productivity. We have also appointed Leslie Martin as our new Chief Strategy and Transformation Officer. Leslie joined us from Boston Consulting Group with 18 years of experience advising on strategy, operational transformation and performance improvement. And finally, we recently welcomed Bhawna Singh as our Chief Technology Officer. Bhawna is a veteran technology executive with over 25 years of experience in scaling global engineering organizations and leading platform transformations at major firms like [indiscernible] and Okta, where she pioneered AI adoption within the organization. She specializes in aligning technical strategy with business growth. I look forward to working with our entire executive team as we continue executing in fiscal '27 and beyond.

At the beginning of this fiscal year, we launched a corporate transformation aimed at sharpening our focus, improving our execution and delivering results. We laid out our clear 3-year growth targets for locations, gross profit and adjusted EBITDA. In fiscal 2026, we delivered against these goals on all fronts, and we are entering fiscal 2027 with growing momentum.

With that, I will pass it over to Asha.

Thanks, Dax, and good morning, everyone. As you've seen in our results today, fiscal 2026 was a defining year for Lightspeed. By focusing the business on our highest conviction growth opportunities, we delivered strong performance across GTV, location growth, payments penetration, profitability and cash flow. After the close of our fiscal year, we accelerated our transformation by divesting the Upserve U.S. hospitality product line. The transaction has made Lightspeed a more streamlined company with our operations now even more tightly aligned to our growth engine. After the divestiture of Upserve, our growth engine where we are highly focused now accounts for approximately 75% of our total revenue versus approximately 67% in fiscal 2026. We are now a more focused, more scalable and more efficient business.

Before I review the financials, I want to highlight the two key trends we experienced in fiscal 2026. First, our strategy to focus on our growth engines, retail customers in North America and hospitality customers in Europe is clearly working. These are regions characterized by tight product market fit, strong close rates and a proven right to win. Our results for the year clearly demonstrate this momentum. Within our growth engines in fiscal 2026, we saw total revenue grow 24%, software revenue grow 15%, GTV increased 15%, Payment penetration reached 46%, up from 41% last year and we added approximately 9,400 net customer locations for the year, driving an 11% year-over-year increase in ending location counts. And importantly, we are still early in monetization, which gives us a long runway ahead.

Second, thanks to our disciplined execution, we're seeing the model become more predictable, more profitable and more scalable for the full fiscal year across the company. We saw gross margin expand to 43% up more than 100 basis points from fiscal 2025. Adjusted EBITDA grew 35% to $72.5 million, positive adjusted free cash flow of $18.2 million and payment penetration increased to 42% from 37% a year ago. I will now discuss the quarter in more detail and then provide our outlook for Q1 and fiscal 2027.

Total revenue grew 15% to $290.8 million, exceeding our outlook driven by an expanding location count, higher software ARPU and increased year-over-year payment penetration. Notably, we achieved 24% revenue growth within our growth engine. Software revenue for the quarter was $93.3 million, up 6% year-over-year and up 9% within our growth engine with softer ARPU rising 4% year-over-year. As anticipated, software revenue growth moderated from the first half of the year due to lapping last year's price increases and our continued focus on annual contracts. Annual contracts result in modest upfront discount but attract higher-quality merchants with lower churn and higher lifetime value. This reflects a deliberate shift toward higher quality revenue and long-term value creation.

Transaction-based revenue for the quarter was $185.3 million, up 17% year-over-year. GPV grew 22% year-over-year. GPV as a percentage of GTV came in at 42%, up from 38% in the same quarter last year. Capital revenue grew 73% year-over-year, while merchant cash advances outstanding grew a more modest 12% year-over-year, thanks to a payback period that declined to 7 months, a 13% improvement over last year. Overall, Q4 GTV grew 11% to $22.9 million, and total average GTV per location continued to increase as we signed more higher-value customers. Same-store sales were up in both retail and hospitality and across all of our main geographies. Within our growth engine, GTV grew 19%.

Total monthly ARPU reached approximately $602, up 10% year-over-year, driven by both higher software and payments monetization. With respect to our efficiency markets, overall revenue in Q4 was essentially flat year-over-year. When we adjust for the sale of Upserve, Q4 revenue was up modestly. Payment penetration in our efficiency markets increased to 36% in the quarter from 33% in the same quarter last year, but remains below the overall business, giving us plenty of room to further increase payments revenue.

Turning now to profitability and operating leverage. Total gross profit for the quarter was strong, growing 15% year-over-year, in line with revenue growth of 15%, driven by strong top line performance and expanding gross margins in both subscription and transaction-based revenues. Total gross margins for the quarter were 44% [indiscernible] to last year, even with transaction-based revenue increasing to 64% of total revenue from 62% last year.

For the quarter, we delivered strong software margins of 87% up from 81% a year ago. Software gross margins benefited from a nonrecurring rebate from a cloud provider. Normalized software gross margins would have been more in line with the first 3 quarters of the year at approximately 82%. This improvement was largely driven by increased cost efficiency consolidating our cloud vendors to renegotiate better terms and using AI to dramatically reduce the cost of support and service delivery. AI now resolves over 80% of our support tickets. This is not theoretical. It is already embedded in our cost structure to date, and we're only just getting started.

Gross margins for transaction-based revenue were 31%, up from 29% last year. This improvement reflects increased payment penetration in our international markets, where margins exceed those in North America as well as growth in our Lightspeed Capital revenue. As we convert customers to Lightspeed payments, we increased our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grew 26% year-over-year. Total adjusted R&D, sales and marketing and G&A expenses grew 15% year-over-year. This was primarily driven by meaningful investments in field and outbound sales as well as product innovation within our growth engine. In Q4, we made a conscious decision to pull forward additional hiring for our outbound team. And as we move into fiscal 2027, we will leverage the investments made last year by deploying AI solutions to further enhance productivity across both R&D and sales and marketing.

Adjusted EBITDA in the quarter came in at $15.1 million, increasing 17% from $12.9 million in Q4 last year. This was driven by continued success from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percentage of gross profit, adjusted EBITDA was 12%. This level of profitability enables us to continue investing in our growth engines, while maintaining strong capital discipline, including funding product innovation, scaling outbound sales and supporting our capital return priority. For the year, we generated positive adjusted free cash flow of $18.2 million. We delivered negative adjusted free cash flow in the quarter of $13 million due almost entirely to timing of working capital.

We continue to actively manage our share-based compensation and related payroll taxes, which were $11 million for the quarter versus $11.8 million in the prior year quarter, slightly declining as a percentage of revenue compared to Q4 last year. Turning now to capital allocation and our balance sheet.

Our balance sheet remains exceptionally healthy. We ended Q4 with approximately $454 million in cash. Approximately $200 million remains under our broader Board authorization to repurchase up to 400 million in Lightspeed share. Lightspeed's board has approved the renewal of our normal course issuer bid for the repurchase of an additional 8.5 million shares, representing approximately 10% of the public float. Total shares outstanding in the quarter were down 6% versus the same quarter last year due primarily to the $86 million in shares repurchased and canceled over the last 12-month period. Aside from potential buyback, our largest use of cash will be growing our merchant cash advance program. There were $118 million in MCAs outstanding at year-end and we intend to continue growing this high-margin program over time.

With respect to M&A, we remain opportunistic in evaluating small tuck-in acquisitions to help accelerate product development. However, large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue executing against our strategic focus.

Looking ahead to fiscal 2027. Divesting Upserve allows us to better focus on our growth engines, expand our gross margin and has relatively minor impact on adjusted EBITDA. This is structural improvement in the business, not short-term optimization. Before turning to our fiscal 2027 outlook, please note that the only update we are making to our 3-year target is to incorporate the divestiture of Upserve. You can refer to the outlook section of our press release for more details.

On a consolidated basis, we expect our 3-year fiscal '25 to fiscal '28 gross profit CAGR of 15% to 18% to remain intact, but we will report numbers excluding Upserve for comparability going forward. With the Upserve divestiture, we expect total gross profit of approximately $665 million to $685 million in fiscal 2028 versus our initial guide of $700 million before the divestiture. Excluding Upserve from historical financials results in a target gross profit CAGR between fiscal 2025 and fiscal 2028 of 16% to 17%. We also expect gross margins to now be in the range of 43% to 46% and an improvement from our original estimate of 42% to 45%. We expect adjusted EBITDA to be approximately 20% of gross profit by fiscal 2028. Excluding Upserve from historical financials results in an adjusted EBITDA CAGR between fiscal '25 and fiscal '28 of over 50% versus the 35% we presented at Capital Markets Day. In terms of free cash flow for fiscal 2028, we now expect adjusted free cash flow of approximately $95 million, a slight decrease from our original outlook of $100 million. Again, due to the divestiture of Upserve. Our outlook for our growth engines does not change. We continue to expect gross profit to grow at a 3-year CAGR between fiscal '25 and fiscal '28 of 20% to 25% and locations to grow at a 3-year CAGR of 10% to 15%.

Now turning to fiscal 2027 outlook. For the full fiscal 2027 year, we expect total revenue of $1.225 billion to $1.265 billion, representing organic growth of 12% to 15%. Total gross profit of $565 million to $585 million, representing organic growth of 12% to 16%. And adjusted EBITDA of $75 million to $95 million. For Q1 of fiscal 2027, we expect total revenue of $305 million to $350 million representing organic growth of 10% to 14%. Total gross profit of $136 million to $141 million, representing organic growth of 10% to 14% and adjusted EBITDA of $15 million to $20 million.

With that, we will now take your questions.

[Operator Instructions] Our first question comes from the line of Dan Perlin with RBC Capital Markets.

Asha, if you could just maybe talk a little bit about the cadence of revenue growth throughout the year. Obviously, the 1Q guide kind of points to an organic growth of 10% to 14% and the full year is 12% to 15%. So there's an accelerant there. And I'm just wondering what those key drivers are going to be?

Yes. Thanks for the question, Dan. You're absolutely right. When you think about the revenue growth, we are expecting uplift as we move throughout the year. There's quite a bit of work that we continue to put into growing the growth engines retail in North America and hospitality in Europe. You've heard about all the product releases Dax talked about as well. So that coming to fruition throughout the quarter should drive top line growth, continued payments penetration as well. So all the things that you've seen from us as before, baked into the accelerating growth as we move into the quarters of fiscal '27 and into '28.

Okay. And then just quickly as a follow-up on Lightspeed Capital. I mean it was up 73% this quarter, so it's clearly growing very quickly. You talked about using some of the proceeds from Upserve to maybe accelerate that growth. I'm just wondering how much are you thinking about pointing towards Lightspeed Capital? And how should we be thinking about potential acceleration there?

Yes. Thanks for the question. We expect Capital to continue to accelerate into fiscal '27. We do need to keep in mind that Upserve was an entity that was heavy on usage of Lightspeed Capital. But when we look at the growth of Lightspeed Capital on a pro forma basis, we still see about 35-plus percent growth in that business. What we have to keep in mind at the end of the day, Dan, is we want to make sure that our default rates remain in the low single digits. We've done a really good job at accelerating ROI on Lightspeed Capital, reducing the [ months ] payback with which we get repaid, and that's resulted in very low default rates, the lowest we've seen in the industry, to be honest. So what's important to us is to grow this business prudently and we expect to continue to do that with some nice 35-plus percent growth in fiscal '27.

Our next question comes from the line of Kevin Krishnaratne with Scotiabank.

First, just a question on the growth engine net adds. Good to see the acceleration. I think you mentioned 4 quarters in a row there. I'm wondering if there's any difference that you'd want to call out between what you're seeing in North America retail and European hospitality? And do we expect another quarter of acceleration in the coming quarter?

Yes. Thanks for the question. Yes, we're obviously super pleased with the acceleration in location growth from 5% to 7% to 9% to now 11% growth, 3,200 locations in Q4. We have doubled down on our growth strategies and our growth engines, outbound sales. Field motions in Europe, we're seeing a lot of new customers come on board in Europe through the field motions. We're also really excited about the progress we've made with the new order-led outbound motions that are outbound remote. So in call centers, but doing outbound for retail. That's -- it's grown from a nascent motion. So that's one that has a large contribution now on the retail side. So very enthusiastic about that. We are projecting that both of those motions will continue to bear fruit and become even more efficient and more productive throughout the year. I would think about growth in FY '27 as staying in that 10% to 15% CAGR and yes, continuing on this path [ through ] in this range.

Still on the growth engine, but specifically the software growth, I think you saw the 9% this quarter, it was 13% in the previous quarter. One, was that within your expectations? And just broadly, how do we think about software growth trends in 2027?

Yes. So software grew 6% year-over-year this quarter, 8% for the year. In the growth engines, it was, I think it was 15% for the full year. Yes, we are really focused on building up the software business, the software growth in the growth engines is a strong point, but we're -- we brought on Gabe as our new CRO, we're really building out the capability in our cross-sell, upsell and account management as well as new business growth has always been very strong. That's supported by a lot of the product innovation that you're seeing. There's a strong cadence of product release velocity, a lot of innovation on AI. We published some adoption stats in -- along with we shared those in the script, and that was -- I think that's really landing with customers. So we're seeing that -- the outcome of that and the location growth, but we'll also see that in software growth through the year. We're also really looking doubling down on the partner and channel strategies. We have a great partner channel, great channel strategy, but we're going to be putting even more effort into that as the year goes on.

Our next question comes from the line of Josh Baer with Morgan Stanley.

One topic, a couple of parts to it, on the divestiture. I thought it was interesting. Not that you'd potentially sell like U.S. hospitality or rest of world retail assets, but that you were able to package Upserve just given timing of the deal. So I guess I'm wondering, first, are there any acquired companies from that 2018 to 2020 that still operate under the legacy brand and operations and not integrated Lightspeed? And then second, was there any potential for this deal to be expanded to broader U.S. hospitality? And then just last, like running through some of the acquisitions, it seems like [indiscernible] are all in the growth engines. If you could just correct me if I'm off there. But then I'm wondering, if there's parts of ShopKeep as far as U.S. restaurants and Vend, which had a large retail presence in Asia and Europe, which could potentially be divested?

Yes. Then, of course, is our -- the foundation of our flagship X Series in retail. So that's a core part of our strategy. It's sold, of course, in our growth engines, and we also sell it in the international efficiency markets as well. We're always looking -- evaluating all options for future divestitures through that lens of creating long-term shareholder value. So Upserve, I think, was a great [ accounting participant ] divestiture. We're not focused on U.S. hospitality. And so that made a lot of sense that they can grow that business. The new buyer has a lot more -- able to give it the focus, whereas for us, our priority is European hospitality where we are a clear leader.

Our next question comes from the line of Martin Toner with ATB Cormark Capital Markets.

Just looking at the '25 to 2028 targets. Can you kind of walk us through the change to 20% growth in gross profit? Is it just a function of the divestiture? And can you kind of talk about how location growth being stronger helps you guys meet those goals?

Yes. Thanks for the question, Martin. Yes, all of the Capital Markets Day guide adjustments we made are solely to take into account the divestiture. So the 20% of gross profit target that we outlined for adjusted EBITDA is only simply factored to remove the gross profit and the EBITDA contribution of Upserve. So that's totally accurate.

When I look at that location growth in the quarter, it makes your 2027 rev target based on the organic growth look kind of conservative. Can you guys talk a little bit about that? And if you agree, it's conservative, why were you conservative?

Yes. There are several factors at play here, Martin. The -- as you heard from us in our prepared remarks, the macro was strong in fiscal '26 both from a same-store sales perspective and from an FX perspective. And EMEA hospitality specifically, we have a pretty thriving business there. Our guide takes into account the factors that are in our control, which means that if the macro continues strong, that will land well for us. And if it doesn't, we're confident that we're going to hit those numbers in the guide. I think that's really the main factor that's causing a slight discrepancy in what you're looking at.

Our next question comes from the line of Tien-Tsin Huang with JPMorgan.

I wanted to ask two questions. First on go-to-market and quota-carrying salespeople. Just curious if there's been any change in your growth plan on head count on go-to-market and if you're seeing any changes in ROI there? Then I have a follow-up.

Tien-Tsin, thanks for the question. We're continuing to double down on growth in our growth engines in Retail North America, hospitality in Europe. Outbound is a big part of that strategy as we open new markets we're looking to grow our head count in those markets. We are very, very prudent on the metrics that we track, however, to ensure salesperson effectiveness so that we can ensure profitable growth, and you see that in the growth in EBITDA. Some of the key metrics we track from a sales perspective are per seller productivity quota achievement, cap, payback, all the things that you would imagine. We even look at customer outreach volume, demos, booked leads, disposition. And we have seen a swift impact from the launch of these outbound motions in our growth markets. And where that seller effectiveness is going super well, we will double down and pivot from areas where they're less effective. We're definitely optimizing these motions as part of the foundation for sustainable growth.

Okay. Great. Perfect. And then maybe for Dax just thinking about product road map and velocity. I'm curious with all this AI stuff changing and definitely seems like a bigger focus on product velocity, especially from the larger incumbent processors. Has that changed your strategy in any way? I'm curious just to hear you if -- on big picture product road map, product velocity and where you're focused.

Yes. If you look at the products released this quarter, almost all of them are AI-powered. Lightspeed AI has been a really big launch for us across retail and hospitality, we're seeing great adoption. We're starting to really double down on building the agentic workflows, particularly as we build out wholesale buying within new order within the wholesale platform. We brought on Bhawna Singh as our new CTO. She's built -- done incredible agentic work at Okta and is going to be working with John Shapiro, to really build out that AI road map. I think the reality is that the complex SMBs and mid-market merchants that we serve, they have laborious tedious workflows that require a lot of time, a lot of staff like wholesale buying, we're sitting with customers now, watching them in their buying processes. It can be well served by agents that we're doing, offering them options for assortment for negotiation for all the different aspects that are -- that require all of the data that Lightspeed brings together, all the foundational data across wholesale, the merchant and the consumer. We have a view across all of that, which is very, very unique in the market since we have all those components. With the wholesale platform with the retail POS platform and with all of the consumer payments piece. And so we can bring that together in a unique way and craft a workflow that benefits from the visibility across all of that proprietary and unique data. and in addition, provide value back to the brands that are fueling all that wholesale buying. So yes, I think we're really excited, and I think that we're in a really unique position to be able to build really, really differentiated agentic workflows on retail and as well on hospitality. We've got a really unique network. We're the number -- we're the leading player for full-service hospitality in Europe. And so therefore, tools like benchmark and trends where we really draw upon that density we have per city to be able to benchmark and offer restaurants insights into what's trending at restaurants and what time of days to offer different kinds of items and when to staff, we can do that because of the density of restaurants that we have and all that data. So all of these elements offer us a very -- a lot of exciting possibilities for road map that's driven by AI.

Our next question comes from the line of Matt Bullock with Bank of America.

Great to see the continued acceleration of core location growth. it sounds like we can expect that to be in the 10% to 15% range for the year. But given the pull forward in some of the outbound hiring, I was hoping you could provide some color on the expected glide path of year-over-year growth for core location. Should we expect that to level out throughout the back half of the year? Or how should we think about it?

So there's certainly -- it's -- like I said earlier, we're going to stay within that 10% to 15%. I'm really proud that we -- that's a 3-year CAGR, 10% to 15%. We reached that within year 1 of the transformation. So this is going well for Lightspeed. And just spoke about some of the product things that we're releasing. We have a compelling platform for folks in our growth engines. So that, I think is, for us, a lot of wind in our sales. So what I will say though is that as we go through the quarters of next year, there is seasonality. So the number of locations will fluctuate. There's definitely some stronger quarters in the raw location number. But the percentage, the growth rate will we're expecting it to stay within the 10% to 15%.

Our next question comes from the line of Richard Tse with National Bank Capital Markets.

Yes. Good work on the locations here. I was wondering if you could maybe help us understand what the mix of those wins from let's say, new logos versus expansions or anything related to sort of price, just to give us a sense of what that would be?

So as I was saying earlier, new business is a very, very strong point for the company. We're bringing a lot of new logos. We shared some of them in the earlier remarks. Of course, a lot of our customers are multi-location. And so it's restaurants adding additional locations, it's retail stores, adding additional locations. But I believe the vast majority of locations is coming from new business, new logos.

Okay. And then with respect to sort of the outbound, I think last quarter, you had like 150 reps. As you sort of look at these new wins relative to the installed base, how is that sort of LTV to CAC trending kind of in contrast? Like are you seeing increasing efficiencies by the numbers you're putting up here? Or maybe give us some sense of how that's playing out.

Richard, thanks for the question. As I said earlier, we do track LTV to CAC very closely. And as you would expect, our outbound motion drives better LTV to CAC than any other motion inside the company. if you think of feet on the street, an outbound rep is walking into a restaurant, and choosing the restaurant, based on the lifetime value or the GTV of that restaurant. And so definitely the best motion from an LTV to CAC perspective. So we're really happy with the progress we're seeing there. And in Europe, hospitality in particular, where feet on the street is popular, we are entering new cities, et cetera, with that motion.

Our next question comes from the line of Andrew Harte with BTIG.

Asha, could you just kind of get the latest thoughts on payment penetration? Just thinking about where it can get to this year and longer term. I know in the past, there's been some contractual hold-ups on the ability for people to take Lightspeed payments. So I would just like to hear where you see opportunities to continue pushing the payments penetration number higher.

Thanks for the question, Andrew. Yes, payment penetration increased to 42% in Q4, up from 38% a year ago. For the full year, payment penetration was in the 42% range versus 37% the year before. Something to keep in mind is that once we remove Upserve, which we did divest at the beginning of this quarter, payment penetration is slightly under 40% for the company, still 46% in the growth engines. So when we think of opportunity, there's opportunity everywhere, still a ways to go which is we expect quite a nice uplift in payments revenue from that opportunity.

When I think about the efficiency portfolio or the rest of the world portfolio, that's where the biggest opportunity lies. The payment penetration is lower than the growth portfolio. And so when we think about things like the [ nonsolicit, et cetera ], that we've been talking about, we're seeing a lot of those things come up to the end of their contracts and are ripe for the taking from a payments perspective. We're undertaking several efforts in fiscal '27 to convert both the back book and continuing to add new locations on payments. Going after the back book more aggressively. We've taken care of a lot of the friction points that merchants had in the past through product enhancement. So we're really confident that we're going to move the needle on that in the coming quarters and years.

And then Dax, following up on some of the questions earlier about bringing AI to your customers. I guess, can you just talk a bit about what the appetite of these SMBs are to add AI? Are they curious to do it themselves? Or do they want to look to you as their POS provider to integrate around that? And then if you could also talk about like is there any ROI or tangible evidence or return you can point us to of why they want to be adopting it? And then how do you plan to really think about monetizing it longer term as well?

Yes. I think it's -- because we house all that proprietary data, we can give insights that other AI tools wouldn't be able to. And it's not just that we have visibility into their retail POS data, we have also all that data from the wholesale buying piece with the brands as well as all the payments transactions and then we have comparative data with all the other merchants that are similar or in other verticals or geographically. So we can do -- we can provide a lot more insight than a general AI tool can, it's looking at general information out in the Internet. So we can provide compelling reasons to want to use AI.

And I think what we're seeing is -- I'll just give you one example, we've seen a threefold increase in the use of our insights tools, which we're now extending with AI and people are starting to use reporting in a very different way and access those insights in a very different way. They can do that in a natural language way. So if they're a newer business owner or they don't know how to ask for -- or they don't know how to look for a type of report, they can ask that in a natural language way, and we can create a visualization for them that's exactly what they had in mind as opposed to knowing how to navigate a reporting product or knowing how to build a customer report. So it really goes from maybe an administrator being able -- having to navigate that or knowing how to do that to more actionable insights being at everybody who has the permissions to query the system and get immediate results, maybe there's an immediate action that needs to be taken. Maybe their stock that needs to be bought in a timely way for which they might need to initiate a conversation with our capital department to bring that stock in right away. So I think it's going to allow businesses to become a lot more competitive because they've got the insights at their fingertips and then they've got access to everything on the platform like capital, so they can order inventory that's being recommended to them because they can be that much more profitable. So I think that we're going to see the activation of a lot of the elements of the product suite that come from the fact that people are using reporting and insights in a whole different way and it's allowing them to do all new things at their business or generate a lot of new ideas on how to generate revenue. And remember, we are -- of course, we're going to be able to sell upgraded plans that include more and more AI-driven features. But if any of these new functionalities generate more income and more revenue for the business, we are an outcomes-based business. We generate more revenue for these businesses, and they generate more payments volume and potentially more capital volume. So there's a lot of discussion about the new model for software is going to be outcomes-based for us. We are an outcomes-based business. 70% of our revenue is payments, payments and financial services. So we drive more success for our customers through AI-driven tools and will drive more payments revenue.

Our next question comes from the line of [ Sagar Kar ] with BMO Capital Markets.

This is Sagar on behalf of Thanos. My first question is for your wins in the growth markets for situations where you are displacing legacy or other modern solutions. What are some of the top reasons you heard why merchants are picking Lightspeed over other options? Is it pricing? Is it features, better support and all of the above? Maybe if you could speak to that, please?

I think it's all of the above. You've got legacy systems where it's very hard to manage multiple locations. That's a basic benefit of the cloud. But now when you think about the AI era in an era where a lot of the value of the business is driven through data, which relates to my last answer around how important it is for that foundational data in your core platform or your operating platform, your system of record, to be able to provide you value to be able to give you the ability to drive your business to the next level. No business wants to lose that competitive advantage that they're seeing other businesses enjoy, right? And so -- and that's how we think about how we want to build new modules and new functionality into Lightspeed is accelerating different revenue opportunities for these businesses. It's a competitive economy. It's got all kinds of challenges around cost. And if they don't have a platform where their data is actually benefiting them to be able to navigate that and also generate opportunity then the system is just merely recording transactions. It's just a cash register replacement. And that's not what Lightspeed is. We're a high-powered light ERP for these businesses to be able to accelerate. And so that's -- that matches the ambition of the customers that we're talking to and that's the whole rationale for everything that we do.

Perfect. That's great. And just switching to a question that's maybe a bit topical for the coming months. With the World Cup coming up, how are you thinking that may impact your hospitality GTV for the summer months? And just generally, how is the health of your end markets?

Sorry, the World Cup in L.A.?

Yes. Like -- so if you have a lot of the European crowd coming over to North America, how will you think that may impact your hospitality [ GTV ] in Europe?

Yes. Listen, European hospitality has had a lot -- several really great seasons since COVID. We've seen -- it's a major, major tourist destination for the world. I mean it's -- there's a lot of commentary that there's too many tourists in Europe. And I think we have a very, very privileged position that one of the main -- one of the main reasons to go to Europe is to eat at some of the best places in the world. Some of the best Michelin star restaurants. And these are on Lightspeed. These restaurants and resorts are by and large on our platform. And I don't think that this is going to be a disappointing summer in terms of those restaurants doing -- those hospitality business doing very, very well.

Our next question comes from the line of [ Lemar Clark ] with Freedom Capital Markets.

Some of your competitors have called low pressured margins from rising memory costs and broader tariff exposure. And you've been in this negative 70% hardware gross profit margins in the last 2 quarters versus negative 50% or so on average in previous quarter. So maybe provide some color on the negative drivers there? Is this a deliberate loss [indiscernible] strategy tied to payments [ attach ] or tariffs compressed in that line? And if so, could you quantify the headwind to margins?

Thanks for the question. We have not actually seen a big impact inside our business from a tariff perspective. The negative margins are really due to discounts and incentives that we provide to encourage new business just given the competitive nature of our industry and also the payment terminals that we provide to assist customers in transitioning to our unified payments and POS offering. So it's quite normal for hardware to be generally discounted to facilitate the adoption of our other revenue streams.

But having said that, we are not happy with the level of discounting that we saw in the last couple of quarters. and we are implementing and have already actually implemented measures that we expect will improve those margins in F '27, but no real impact felt inside the company from a tariff perspective.

Our next question comes from the line of Suthan Sukumar with Stifel.

For the first one, I wanted to touch on new order. I believe you mentioned some progress on the outbound side of that business. But it does feel like there are a number of early day levers here with this opportunity. Can you speak a little bit about what your priorities are for investment this year? And how should we think about impact and contribution from new order over fiscal '27?

Yes. The new order effort is really firing on all fronts. If you looked at some of the product announcements that were in this quarter, integrating FAIRE, bringing 100,000 new brands to the new -- to the platform, millions of products as well as AI-driven recommendations. The outbound has just been a star. I think we talked about last quarter how we were pulling but you're pulling some dollars from this quarter into last to [ higher ahead ] for those retail outbound folks. They're highly efficient. They're calling some of the leads provided from some of the brands, new brands that we're signing, like [indiscernible], and we've signed a number of great new brands this quarter like Sorel and Nixon. So a lot of amazing progress, and I think that we really believe in that outbound model for retail. And yes, I think that we'll continue to monitor it, continue to monitor all the metrics and all the seller metrics around it. And I think that we'll continue to grow this team and grow investment in that new order-led outbound motion.

And just on the growth engines, it looks like you guys are hitting your stride there with the improving organic growth visibility. How do you look at market expansion overall from that lens? Do you see opportunity to expand into net new deals and verticals over time?

Yes, absolutely. Our growth engine growth, honestly, is what we're seeing is structural. It's not cyclical. We had revenue growth of 24% in the growth engines for both the quarter and the year. And we're really excited about the traction we're seeing there in both of those markets, [indiscernible] retail and European hospitality. We have strong product market fit, the highest close rates across the company and increasing attach of both payments and capital. So lots of opportunity, like I said in the prepared remarks, we're still early in monetization, and we expect that we're going to continue to take advantage of that TAM. And yes, we are growing -- opening a couple of new [ geos ] this year.

Thank you. Ladies and gentlemen, that concludes our Q&A session. I will now turn the call back over to Gus for closing remarks.

Great. Thanks, everyone, for joining us today. We will be around all day if anyone has any follow-up questions. And we look forward to speaking to everyone on our next call when we report our fiscal Q1. Have a great day, everyone.

This concludes today's conference call. You may now disconnect your lines.

Ladies and gentlemen, thank you for standing by. Welcome to the Lightspeed business update call. [Operator Instructions] I will now turn the conference over to Gus Papageorgiou, Head of Investor Relations.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's conference call to discuss the divestiture of the Upserve U.S. hospitality product line. Joining me today are Dax Dasilva, our CEO; and Asha Bakshani, our CFO. After prepared remarks, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our press release issued earlier today.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the two can be found in our earnings press release, which is available on our website on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated.

With that, I will now turn the call over to Dax.

Thanks, Gus. Good morning, everyone, and thank you for joining us. Today marks a significant milestone in the evolution of Lightspeed. We are announcing the divestment of our noncore Upserve U.S. hospitality product line to SkyView Equity, a move that sharpens our focus and aims to expand our gross margins, further strengthens our balance sheet and accelerates our path towards profitable growth.

This transaction is a direct reflection of our focused strategy, doubling down on our core strength of retail customers in North America and hospitality customers in Europe, where we have a proven right to win. The total value of this deal is structured to deliver immediate and ongoing capital, totaling up to $81 million. Total cash consideration of $44 million, not subject to any earn-out and up to an additional $37 million in earn-outs over 24 months as the business hits performance milestones. The transaction closed yesterday at the close of business.

It is critical to note that while we are divesting the legacy Upserve merchant base, the sophisticated analytics technology acquired with Upserve, which form the foundation of Lightspeed Insights, will remain a core component of Lightspeed's flagship restaurant solution. This technology remains a primary driver of new customer adoption at Lightspeed, a strong contributor to software revenue and a key competitive advantage for our flagship restaurant platform. We will continue to retain and further develop this technology.

I will let Asha take you through the financial impacts of the transaction.

Thanks, Dax. As noted earlier, this divestment sharpens our focus on the areas where we are strongest. With Upserve removed, the strength of our core business becomes clearer, a business characterized by faster growth and higher gross margins. From a P&L perspective, for fiscal 2026, we expect to report that removing Upserve will reduce revenue by approximately $140 million, gross profit by approximately $26 million and GTV by roughly $5 billion.

As part of this transaction, approximately 3,200 U.S. hospitality customer locations and around 70 dedicated team members will transition. We are grateful for their contributions to Lightspeed and confident they are well positioned for continued success in their next chapter.

With respect to our 3-year financial goals established at our Capital Markets Day in March of 2025, the divestiture is expected to impact this outlook by approximately 5% on the absolute value of each of gross profit, adjusted EBITDA and free cash flow for fiscal 2028. We expect the compound annual growth rate forecast presented at Capital Markets Day to remain unchanged.

Most importantly, as a noncore asset within the company's efficiency portfolio, the divestiture of Upserve is consistent with Lightspeed's strategy and expected to meaningfully improve the company's revenue growth and gross profit growth trajectory. I will provide a more thorough update on these 3-year goals when we report our fiscal Q4 on May 21 of this year.

The divestment also further fortifies our already stellar balance sheet. Our priorities in terms of capital allocation remain the same. Approximately $200 million remains under our broader Board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases.

As a reminder, our normal course issuer bid program that we have used to buy back shares is limited to 10% of our public float for a 12-month period. We fully utilized our 2026 NCIB program and expect to renew it in May 2026, subject to Board and TSX approval and market conditions.

Aside from the potential buybacks, we will continue to grow our merchant cash advance business. There were $106 million in MCAs outstanding as at the end of our fiscal Q3, and we intend to continue to grow this high-margin business in our upcoming fiscal year and beyond.

With respect to M&A, we will continue to be opportunistic in evaluating potential small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us.

For the $44 million cash payment, $20 million was paid at closing with the vast majority of the balance payable within 90 days, fully committed and not subject to any conditions. The earn-out payments of up to $37 million will be paid over 2 years based on achievement of performance targets.

In closing, I want to reiterate that with this transaction, Lightspeed is leaner, more focused and better positioned than ever to lead in our targeted growth engines of retail in North America and hospitality in Europe.

With respect to our fiscal Q4 and full year 2026, we expect to deliver revenue and gross profit ahead of our previously established fiscal Q4 and full year outlook with adjusted EBITDA in line with our outlook. Lightspeed remains committed to improving our adjusted EBITDA performance. Following the divestiture of Upserve, we expect fiscal 2027 adjusted EBITDA in the range of $75 million to $95 million.

Because we remain in quiet periods, I would ask that you please keep your questions focused on the transaction we are announcing today as we will not be able to comment on the quarter. We look forward to discussing our Q4 results with all of you on May 21. We can now take your questions.

[Operator Instructions] Your first question comes from the line of Stephen Machielsen with BMO Capital Markets.

Can you give us a better triangulation of the EBITDA contribution from Upserve?

Yes, sure. I'll take that question. Upserve did contribute meaningfully to the fiscal '26 adjusted EBITDA, but this contribution was a diminishing one. If you remember, Upserve is a noncore asset outside our growth engines, so it was declining year-over-year. So its contribution to fiscal '27 would have been lower than fiscal '26.

We don't disclose EBITDA by product line, but just given the allocations that go into that number and the indirect costs that go into calculating that. But with Upserve out of the picture, we expect adjusted EBITDA for the upcoming fiscal year to still improve, and we gave a range of $75 million to $95 million, which is a meaningful step-up from fiscal '26.

Great. And I do see that you disclosed the transaction-based revenue related to Lightspeed in that $140 million. Is there any other payments revenue that would have been in the $140 million? I'm just trying to get a sense of the software versus payments mix in the business.

No, there's -- the $140 million includes the software and payments. It encompasses all the revenue of that Upserve portfolio and the net to gross that you saw in the disclosures.

Okay. So that $15 million, that's the gross?

Correct, correct. And that $15 million is really just an accounting presentation for a small portfolio of customers for which we're still keeping the net revenue. So there's a presentation change. There's no change in gross profit or cash received.

Okay. And just final question. So does this reflect all of the customers who are still on the legacy Lightserve payments, i.e., it wouldn't include the ones who switched over to the new Lightspeed platform?

Yes. These include all customers that were previously Upserve customers. There are some of those customers that were on a legacy payment provider and some of those customers that were on one of our new payment providers. But all of the 3,200 locations that were tied to that Upserve entity have now been divested.

Okay. Sorry, sorry, I meant like -- I don't know if I misspoke, but just the Lightspeed software, like none of the -- if they transition to the new Lightspeed...

I understand flagship. That's correct. Our Lightspeed flagship platform is not a part of this divestiture. This is just the legacy Upserve portfolio.

Your next question comes from the line of Martin Toner with ATB Cormark.

Just further to the EBITDA question, like what kind of OpEx savings do you think come along with this deal?

Martin, thanks for the question. The EBITDA contribution, like I mentioned earlier, to fiscal '27 was meaningful and fiscal '27 is declining from fiscal '26 as this contribution was a diminishing one. When we think about OpEx, we think about the 70 people that are transitioning over. And then obviously, there's some sales, a little bit of marketing and G&A as well. I think the best way to look at it is really looking at the adjusted EBITDA range that we gave of $75 million to $95 million for the upcoming fiscal year. And you'll see that is a meaningful step-up from our fiscal 2026 ex-Upserve.

Your next question comes from the line of Andrew Harte with BTIG.

Just one for me. I guess when you look at the rest of the portfolio, what other noncore assets are there that you could consider a strategic alternative for?

Yes. Thanks for the question. So yes, obviously, this is all about focus for us. This is all about focusing on our 2 growth engines where we're investing. We're focused on creating really meaningful value for our customers and improving the operational and financial performance of our business and also returning capital to shareholders. We continue to balance our growth and efficiency engines, and we're going to continue to evaluate all options through the lens of long-term shareholder value creation and strategic fit.

Your next question comes from the line of Suthan Sukumar with Stifel.

This is [indiscernible] speaking on behalf of Suthan. One question...

Suthan, we can't hear you very well.

Can you hear me now?

Yes, much better.

All right. Perfect. This is [indiscernible] speaking on behalf of Suthan. Just a question on U.S. hospitality. In the earlier quarter with hospitality, the efficiency market [indiscernible] performing well. Just curious, what are some of the KPIs required as you [indiscernible]?

Sorry, Suthan, do you think you can repeat that? We're having a really hard time hearing you.

[indiscernible].

Yes, we can hear you, but it's not very clear.

Okay. I'll try one more time, just a question on U.S. hospitality. In earlier quarters, U.S. hospitality [indiscernible] as well. What are some of the KPIs required to hit that [indiscernible] if available?

Yes, I heard that. Thanks for the question. The earn-out is based on performance targets, particularly adjusted EBITDA structured over the next 24 months. The U.S. hospitality, as you mentioned, was in our efficiency portfolio. Our growth engines are Retail North America and hospitality in Europe. That's really where the majority of Lightspeed investments go, where our unit economics are strongest. We have the highest, the strongest right to win in our growth markets. So Upserve as the U.S. hospitality asset was really outside of those growth engines.

And just one last question for the capital allocation. I know you guys mentioned the NCIB. Just on M&A, is there a potential to be more targeted on M&A looking ahead? I know you mentioned there's a small tuck-in.

Yes. Thanks for the question. From an M&A perspective, small tuck-in acquisitions, we're always on the lookout for those things that can accelerate our product road map or increase our share from our merchants. Large-scale M&A is off the table for us, Suthan. So for us, the uses of cash outside of these small tuck-in M&As -- will really the main uses of cash will be growing our MCA business and returning some of that cash to shareholders if the market conditions prevail, in the form of a buyback. We still have about $200 million outstanding from our Board authorization, and we intend to file a new NCIB, the earliest that we can, which is in May.

[Operator Instructions] Your next question comes from the line of Todd Coupland with CIBC.

Can you hear me okay?

Yes, loud and clear.

Great. So I wanted to ask about -- qualitatively about a more focused go-to-market and how we should think about this divestiture's impact on that.

Todd, thanks for the question. I'll take a step back and just remind everyone that our growth engines for Lightspeed are Retail North America and hospitality in Europe, that's where the vast majority of Lightspeed investment is going. That's where our unit economics are strongest and we absolutely have the strongest or highest right to win in those markets. And so with this U.S. hospitality asset removed, it really improves the strategic and managerial focus for us in go-to-market, in particular as well. It simplifies our operations. It improves our profitability, our growth, and it really allows us to deploy capital including in go-to-market towards our faster-growing and more profitable businesses.

Yes. And as you saw from this last fiscal year, we really doubled down on all of the outbound sales in the European hospitality with a lot of field reps deployed across Europe as well as outbound remote reps in North America retail, all of which have contributed to very, very exciting location growth numbers across these growth engines, and we continue to want to double down in those areas where we have a right to win.

Is there any qualitative color you can provide on sort of looking back perhaps in an adjusted location growth excluding this -- the declines, I guess, you've been fighting against with Upserve in the mix.

Yes, I'll take that one, Todd. I think the best way to look at it is, at the end of the day, it was a small merchant base, was 3,200 locations. So you take the 3,200 locations out of our total locations. Upserve was declining year-over-year in lower double digits, I would say. So you can use that for the go-forward trajectory.

Your next question comes from the line of Dan Perlin with RBC Capital Markets.

I wanted to just drill back down on kind of the contribution, so we're clear on the base jumping off point here. So clearly, the gross margins, it looks like they're just under 19% for the business. That math was right? That's like 22% of your gross profit in '26 roughly. And you called out that's a meaningful contributor to EBITDA. So clearly, gross margins are a lot lower than your corporate average. I'm trying to get a sense of how much lower, if at all, the margin profile -- the EBITDA margin profile of this was relative to your corporate average? I mean, I suspect it's lower, but it's hard to reconcile those numbers.

Dan, thanks for the question. No, you're absolutely right. The gross margins were lower for this business overall. Software margins were lower than the corporate average. Corporate average is about 80%, a little over and the software margins for Upserve were in the 70% range. The main reason gross margins were lower though, was the payments portfolio. Upserve payments revenue was not with 1 of our main partners for the most part. And so the payments margins were lower there. So if you look all told, the overall gross margin of the Upserve business was lower than the corporate average. And again, because it was a declining asset, the EBITDA margins were declining as well.

Got it. But they were lower than your corporate average as well, just based on that commentary. It just didn't sound like there's enormous -- okay for EBITDA, not for gross profit.

We didn't disclose EBITDA, Dan, just because business unit EBITDA has a lot of indirect costs that go into calculating that. But I think you can triangulate from the lower gross margin.

Yes. Yes. Okay. And then just a second question, just any thoughts about how you arrived at this valuation. It's -- as you said, $81 million, it did $140 million of revenues. You've got a 2-year earn-out potential. So it's got some time before you get the cash in. And again, depending upon this EBITDA, it's hard to know what kind of multiple is actually paid. So just can you just help us how you guys arrived at this being like a fair and equitable price for you guys as well as for buyer.

Yes, absolutely. We valued Upserve on a discounted cash flow basis among other methods. And as a noncore asset outside our two growth engines with a declining growth trajectory, the discounted cash flow reflected what this business was worth to us on a stand-alone basis going forward, right? And so the transaction we negotiated really gave us conviction that this was the right time to divest and the right valuation, to be honest. And to redeploy that capital into other areas of the business that you've heard us talk about.

I think when you look at the gross profit that we provided for fiscal '26, we are divesting the asset for a 3x LTM gross profit, and an even higher multiple when you're looking at the next 12 months gross profit, right, given that it was a declining asset within Lightspeed. Again, for us, Dan, the important part was executing in line with our strategic focus as well. This simplifies operations for Lightspeed. It improves our profitability and growth, and it really allows us to deploy capital towards our faster-growing and more profitable businesses.

Yes. No, it's great. It looks like it really streamlines the business, and it's good to have the funds to push towards capital as well as buybacks. So congratulations on the transaction.

Your next question comes from the line of Richard Tse with National Bank Capital Markets.

Just a really quick 1 for me. I'm wondering if you can maybe comment on the extent of how competitive of a process this was? Did you have a kind of a number of prospective buyers here for this asset? Or maybe just kind of give us a bit of color on that, please.

Richard, thanks for the question. Absolutely. We ran a thorough process. We engaged [indiscernible] bankers, and we did engage with a number of parties. SkyView did emerge as the best value for us, and the right home for the Upserve team and our customers. That was important to Lightspeed as well. When we think about the strategic logic, again, Upserve sits in our efficiency market, a market that we've made a deliberate decision, as you know, to not invest for growth. That's where our focus goes and the growth markets are where our focus goes and our right to win is strongest, like we said. And that's really what today's transaction reinforces.

Okay. If I could just get another one in. You sort of mentioned in the earlier comments about acquisitions still certainly not big ones. But in regards to some of the smaller ones that you may be looking at, is the focus is to lean in more heavily on sort of U.S. retail now? Or would the preference be to lean in on sort of European hospitality?

I think those are both our growth engines. So I think if we're doing tuck-in acquisitions, it would be in reference to our 2 growth engines, NoAm Retail and EMEA Hospitality. And these could accelerate road map or they could be ways to improve software ARPU, software growth.

Your next question comes from the line of Kevin Krishnaratne with Scotia Bank.

Just one for me. I know that you referred to this as being in the efficiency market. But when you look at the average GTV, it's -- it looks like it's a little bit over $1.5 million. So it looks like on a financial profile [indiscernible]. I'm just wondering like what type of assets and locations these are? And I'm assuming it's just that you're facing a lot of competition in the markets where these locations are located. Just trying to get a sense of -- they seem like they're on the higher end of your profile. So just curious.

Kevin, I'll take that one. The average GTV, this portfolio of customers, the Upserve U.S. hospitality portfolio were high GTV customers, so bigger restaurants in U.S. hospitality. But if you remember, our focus was really when we split the company into the growth and the efficiency portfolio, our focus was really on the growth portfolio, North America Retail and EMEA hospitality, as you just heard.

The U.S. hospitality, you're right, they were high GTV customers, but the competitive landscape in U.S. hospitality, we decided a couple of years ago to pivot to U.S. retail and EMEA hospitality more strongly and to optimize the U.S. hospitality portfolio for efficiency. So these are higher GTV customers, but they were not in our focus markets.

We made the deliberate decision not to focus on U.S. hospitality a couple of years ago. Just given the competitive landscape and the fact that for our money invested, the ROI that we would get in NoAm Retail and EMEA Hospitality was much higher than in this efficiency portfolio. So it made a ton of sense to divest this asset at this time.

There are no further questions at this time. I will turn it back to Gus Papageorgiou for any closing comments.

Okay. Thanks, everyone, for joining us today, and we look forward to speaking to everybody on May 21, when we report our fiscal Q4 and 2026 results. Have a great day, everyone.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to Lightspeed's Third Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Gus Papageorgiou, Head of Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q3 2026 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; and Asha Bakshani, our CFO. After prepared remarks from Dax and Asha, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected.

Certain material factors and assumptions were applied in respect of conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our third quarter fiscal 2026 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars, unless otherwise indicated.

With that, I will now turn the call over to Dax.

Thank you, Gus, and good morning, everyone. Our Q3 results highlight our disciplined execution against the strategy we presented at Capital Markets Day. We delivered another strong quarter with revenue adjusted for $312 million and adjusted EBITDA of $20.2 million, both exceeding our outlook. Our focus on the 2 growth engines of retail in North America and hospitality in Europe is driving results. They account for 2/3 of our total revenue and generated 21% year-over-year revenue growth in the quarter.

At our Capital Markets Day, we set 3 clear priorities to drive long-term value at Lightspeed: one, growing customer locations in our growth engines; two, expanding subscription ARPU; and three, improving adjusted EBITDA and free cash flow. In Q3, we made solid progress in all fronts. Location growth reached its fastest pace since our business transformation began. Software revenue and ARPU increased even as we lapped prior price increases, especially within our growth engines and we achieved our second consecutive quarter of positive free cash flow and grew adjusted EBITDA by 22%.

These results demonstrate the effectiveness of our strategy and our ongoing momentum. Let me walk you through our performance against each of these priorities in more detail. Starting with customer locations. Our focus remains on quality growth winning sophisticated high GTV merchants in retail in North America and hospitality in Europe. Customer locations in our growth engines grew 9% year-over-year in Q3 with approximately 2,600 net new locations added in the quarter. This acceleration is exactly what we would expect at this stage of our go-to-market ramp and sets us up well to achieve our targeted 10% to 15%, 3-year customer location CAGR outlined for our growth engines at Capital Markets Day.

Overall, total customer locations grew, reaching approximately 148,000 in the quarter. In retail, we welcome leading global brands like Balmain, Diane Von Furstenberg, and Dickies the Lightspeed's Wholesale ecosystem. As a reminder, Lightspeed Wholesale connects retailers using our Lightspeed retail POS and brands using our NuORDER by Lightspeed platform. With this integration, retailers can discover an order of 5 million products from over 4,000 brands all in one place. This is a true differentiator with retailers like [indiscernible], migrating their POS to Lightspeed just so they can benefit from our unified wholesale ordering.

We also welcomed Irvine Tack & Western Wear, one of the largest Western retailers in the world. and Value Zone with 7 locations that was attracted by Lightspeed's advanced inventory features and scanner app. In European Hospitality, we continue to win high-profile multi-location operators such as Hotel Belles Rives on the French Riviera, Quai des Artistes in Monaco, Burger Vision in Germany with over 20 locations and ambitious expansion plans and Colicci with more than 40 locations across the U.K. These wins reinforce our conviction that as merchant complexity grows, Lightspeed's unique value stands out even more.

An expanded outbound sales efforts, increased investment in vertical brand marketing and more effective inbound spending have accelerated location growth, particularly in our growth engines. We have fully hired our team of 150 outbound reps for the year, and we continue to ramp them towards full productivity. Our outbound motion continues to deliver highly targeted acquisition of our ideal customers with strong unit economics.

Turning to software revenue and ARPU. At the company level, software revenue grew 6% year-over-year, reflecting the lapping of prior year pricing actions and expected seasonality effects in parts of our business. Our growth engines delivered 13% software growth year-over-year, underscoring strong momentum. We continue to drive software ARPU higher through innovative products that empower complex multi-location merchants thrive.

We launched Lightspeed AI bringing Agentic AI directly into retail and hospitality workflows. These AI capabilities go beyond reporting to help merchants identify best sellers, optimize inventory decisions and improve kitchen execution in real time. And National Retail Federation's Big Show we unveiled Marketplace. Available in Lightspeed Wholesale, retailers can now browse, compare and purchase inventory from multiple brands, all in one place, the next level of wholesale integration that we believe no other cloud POS provider offers.

We also expanded in-store monetization by adding Tap to Pay for Android on Lightspeed Scanner and delivered customer-facing displays on Lightspeed's payment terminals, improving checkout efficiency and transparency. In Hospitality, we continued to extend our product leadership in Europe. We launched Lightspeed Tempo, which applies pacing intelligence to service flow.

Turning what has traditionally been an art into a science by guiding servers through each stage of service. We also introduced Lightspeed Reservations, offering independent restaurants an integrated alternative to costly third-party platforms. And Lightspeed tasks which standardizes workflows across locations to improve consistency and execution. Collectively, these releases help drive deeper engagements, higher module attachments and improved win rates with the types of merchants we are actively targeting.

These represent innovation-led growth that reinforces our confidence in the long-term ARPU and gross profit expansion we outlined at Capital Markets Day. Finally, on profitability and free cash flow. In Q3, we delivered $20.2 million in adjusted EBITDA and generated positive free cash flow for the second consecutive quarter. Positive free cash flow of $15 million in the quarter helped increase our total cash balance by over $31 million since Q1. Importantly, we achieved this profitability while continuing to invest meaningfully in growth, scaling our outbound sales organization and increasing product innovation in our growth engines.

The fact that we can do both, invest for growth and expand margins is a direct result of the structural changes we've made over the past year. Adjusted EBITDA reached 15% of gross profit, moving us closer to the 20% long-term target we outlined at Capital Markets Day. This progress reinforces our confidence in the operating model and in our ability to continue expanding adjusted EBITDA and free cash flow as we scale.

I will let Asha take you through the numbers before I make some closing comments.

Thanks, Dax, and welcome, everyone. Lightspeed had a strong third quarter with many of our key financial metrics and KPIs surpassing expectations. We continue to deliver with strength in our growth engines and with disciplined commitment against the financial framework we outlined at Capital Markets Day. Our performance continues to be defined by 2 key trends. First and most importantly, we are seeing a tremendous impact from our strategy to focus on our 2 growth engines: North America Retail and European Hospitality.

For these 2 markets, we generated strong year-over-year results. Total revenue increased 21%. Software revenue grew 13%. GTV was up 16%. Payments penetration was 46%, up from 42% last year, and we added approximately 2,600 net customer locations in the quarter, driving a 9% year-over-year -- in ending location count, the highest rate since we began our business transformation. Combined, our growth engines make up 2/3 of our total consolidated revenue and they will continue to represent an increasing portion of revenue, GTV and payments volume.

Second, even with expanding investment in product and go-to-market, the company's total adjusted EBITDA and cash flow metrics continue to improve. We delivered positive free cash flow for the second quarter in a row. Free cash flow of $15 million in the quarter is up from free cash flow use of $0.5 million a year ago, and we expect to generate positive free cash flow for the full fiscal year, a significant milestone for the company.

I will walk you through a detailed look at our financials and then provide our updated outlook. Total revenue grew 11% to $312.3 million, exceeding our outlook driven by an expanding location count, higher software ARPU and increased year-over-year payment penetration. Notably, we achieved 21% revenue growth in North America Retail and European Hospitality. As we continue to scale our go-to-market efforts, we expect our total revenue growth to track closer to what we see in our growth engine. Software revenue was $93 million, up 6% year-over-year with software ARPU rising 4% year-over-year.

Software ARPU was helped by our outbound teams attracting larger, more sophisticated merchants as well as the impact of new product releases. As anticipated, software revenue growth moderated sequentially due to lapping last year's pricing. This quarter, we also experienced typical seasonal softness in our Golf business and we made a strategic shift to focus on annual contracts. While annual contracts result in modest upfront discount, they attract higher quality merchants with lower churn and higher lifetime value strengthening our cash flow and subscription base for the long term. We believe this shift is the right trade-off for the long-term durability and health of our subscription base and is already starting to yield results as evidenced in our free cash flow.

Transaction-based revenue was $209.4 million, up 15% year-over-year. GPV grew 19% year-over-year, and capital revenue grew 34% year-over-year. GPV as a percentage of GTV came in at 42%, up from 38% in the same quarter last year. Payments penetration dropped slightly from Q2 due to GTV mix. In Q2, we had very strong seasonal performance from certain verticals that have very high payment penetration rates, such as Bite and Golf. We expect payment penetration to continue its upward climb over time. Overall, GTV grew by 8% to $25.3 billion and total average GTV per location continues to increase as we sign more higher-value customers.

Same-store sales were up in both retail and hospitality and across all of our main geographies. Total monthly ARPU reached $660 up 11% year-over-year driven by both higher software and payment monetization. ARPU grew across both our growth and efficiency market. With respect to our efficiency markets, our goal is to maintain the revenue base through additional module attachment and expansion of financial services, and we have been successful in doing so. Software and payments revenue from these markets was flat to last year.

There also continues to be a meaningful opportunity to grow payments revenue in these markets as payments penetration is below those of our growth markets. GPV as a percentage of GTV in our efficiency markets increased to 35% in the quarter from 32% in the same quarter last year. With respect to profitability and operating leverage, total gross profit was strong, growing 15% year-over-year outpacing revenue growth of 11% driven by strong top line performance and expanding gross margins in both subscription and transaction-based revenue.

This performance remains consistent with the medium-term framework we outlined at Capital Markets Day, where we targeted a 3-year 15% to 18% profit CAGR, driven by customer location growth, ARPU expansion and operating leverage. Total gross margin was 43%, up from 41% last year, even with transaction-based revenue increasing to 67% of total revenue from 65% last year. Hardware gross margins declined this quarter due to strategic discounts and incentives to drive new business. We delivered strong software gross margins of 82%, up from 79% a year ago.

This was largely driven by increased cost efficiency. Our success over the past few quarters in consolidating our cloud vendors renegotiating better terms, restructuring the organization to take out costs and using AI to reduce the cost of support and service delivery have all contributed to industry-leading software margins. Gross margins for transaction-based revenue were 31%, up from 28% last year. This improvement reflects increased payment penetration in our international markets where margins exceed those in North America and growth in our capital business.

As we convert customers to Lightspeed payment, we increased our overall net gross profit dollars. And in the quarter, we saw a transaction-based gross profit grew by 28% year-over-year. Total adjusted research and development, sales and marketing and general and administrative expenses grew 14% year-over-year. This is primarily driven by the meaningful investments we are making in field and outbound sales as well as product innovation within our growth engine.

Adjusted EBITDA in the quarter came in at $20.2 million increasing 22% from $16.6 million in Q3 last year, driven by continued success from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percentage of gross profit, adjusted EBITDA was 15%, approaching the longer-term 20% target we outlined at our Capital Markets Day. This level of profitability enables us to continue focusing on our growth engines while maintaining strong capital discipline, including funding product innovation, scaling outbound sales and supporting our capital return priorities.

I'm very happy to report adjusted free cash flow of $50 million in the quarter. Thanks to our improving adjusted EBITDA, disciplined management and certain favorable working capital movements, we were able to deliver positive free cash flow despite our accelerated outbound strategy and increased investment in R&D. This quarter, we saw record capital revenue, while at the same time lowering outstanding cash advances from the previous quarter. Our goal is to target a shorter remittance time frame, and we are making great progress towards that end.

To date, our typical remittance period for a merchant cash event is approximately 7 months. We continue to actively manage our share-based compensation and related payroll taxes, which were $16.5 million for the quarter versus $13.6 million in the prior year quarter holding constant at approximately 5% of revenue.

With respect to capital allocation and our balance sheet, our balance sheet remains exceptionally healthy. We ended Q3 with approximately $479 million in cash, an increase of approximately $16 million from last quarter. Approximately $200 million remains under our broader board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases. Total shares outstanding in the quarter were down by 10% versus the same quarter last year due primarily to the $179 million in shares repurchased and canceled over the last 12-month period.

As a reminder, our normal course issuer bid program that we have used to buy back shares is limited to 10% of our public float for a 12-month period. We've already exhausted our fiscal 2026 buyback program. Subject to TSX approval, Board approval and market conditions, we intend to renew this buyback program in fiscal 2027. Aside from potential buyback, our largest use of cash will be growing our merchant cash events business. There are currently $106 million in merchant cash advances outstanding, and we intend to continue to grow this high-margin business over time.

With respect to M&A, we remain opportunistic in the evaluation of small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue our strategic focus. Now turning to outlook. Our fiscal Q4 outlook reaffirms our confidence in our profitable growth trajectory and is in line with the financial framework we outlined at our Capital Markets Day, balancing disciplined investment behind our growth engines along with continued profitability and cash generation.

There are several factors influencing our fiscal Q4. Fiscal Q4 is typically our lowest GTV quarter and we expect similar seasonal patterns this year. We also continue to lock pricing actions implemented last year and continuing to drive a mix shift towards annual contracts. In addition, as evidenced in our results, our go-to-market and product investments are driving strong sales momentum. Given that strength, we are choosing to pull forward incremental investment into Q4 in areas where demand is outpacing our initial expectations, such as in our retail outbound sales organization.

As a result of our execution to date, we are raising our guidance for revenue, gross profit and adjusted EBITDA as follows: For the fourth quarter, we expect revenue of approximately $280 million to $284 million. Gross profit of approximately $125 million to $127 million and adjusted EBITDA of approximately $15 million. For fiscal 2026 we expect revenue of approximately $1.216 billion to $1.22 billion. Gross profit of approximately $523 to $525 million and adjusted EBITDA of approximately $72 million.

With that, I will turn the call back to Dax.

Thanks, Asha. Before we take your questions, I wanted to take this opportunity to publicly welcome Gabriel Benavides to Lightspeed. In November, we appointed Gabe as our Chief Revenue Officer. Gabe brings 2 decades of experience scaling global sales organizations. His mission is clear: accelerate our go-to-market performance, add more high-value customers and help expand our software ARPU.

I also want to acknowledge JD Saint-Martin, who will be stepping down as President this March. JD's leadership built the foundation for the transformation we are seeing today. His discipline allowed us to pivot toward profitability and Gabe's appointment now accelerates that trajectory. We are deeply grateful for JD's partnership over the last 6 years.

And with that, we can take your questions.

Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Dan Perlin of RBC Capital Markets.

Nice results here. I wanted to ask maybe a broad-based question and then -- maybe a little specific one. But, at a high level, how would you describe kind of the health of your end markets? I know Asha, you said same-store sales, growth across all regions was positive. But maybe if you wouldn't mind a little more detail around the regions and maybe any pockets of surprise, both good and bad, as you think about where those opportunities are today?

Thanks, Dan. Thanks for the question. Yes, same-store sales was very healthy in our fiscal Q3. When we look across retail, we saw all of our highly penetrated verticals do very well, positive growth year-over-year. Home & Garden and Bike, we saw a bit of a deceleration from Q2 to Q3 just because they're -- those are verticals that are very strong in the summer months, but nevertheless, we saw very strong growth in Q3 in all of the retail, given that, that is such a good quarter for the holiday shopping period.

In terms of surprises, I mean, I would just say the one area that helped slightly was FX in the European market. The euro has continued to remain strong into Q3, and that's helped the euro hospital GTV. Outside of that, I would say no other surprises. We're happy with what we're seeing in the macro.

Okay. That's great. I guess if you could maybe just spend a second on the gross margins around really software. They were pretty strong. I say -- I should say they're quite strong despite the fact that you had to lap the pricing. I heard kind of the reasons that you gave for the current quarter. I'm just wondering how do we think about sustainability of those levels?

Are there any things -- I know you said some investments that are going to come in, but I'm just trying to understand how sustainable that is given the fact that you did kind of lap these pricing this quarter, and I'm not sure how much you actually have slated for kind of future quarters going forward?

Yes, sure, I'll take that one as well. We feel pretty good about our gross margins. The improvement in the software line comes from a couple of factors. There's obviously the growth in subscription. But also, we've -- we've done a lot of work on OpEx optimization. We've done a lot of work on our cloud spend with Google and AWS getting better rates and also more efficient use of those platforms.

And then last but not least, we've done some good work on efficiency in our support department, deployed. We've deployed AI in a lot of areas. A very high percentage of the frontline support is Chat now given the different AI tools that we've used. And so we do feel good about that 82%. We feel that over 80% margins on the software line is a sustainable place to be for us.

Your next question comes from the line of Dominic Ball of Rothschild & Co Redburn.

So great job on locations. I mean just one sort of broader question. Software names have derated quite materially on concerns around AI disruption. So Dax, could you tell us a little bit about which Lightspeed software capabilities are structurally differentiated because they're built on more proprietary Lightspeed payment data?

Yes. And I think you've put something out that's important, right? We've got payments data that we're building our Agentic workflows -- our Agentic AI workflows around. There's also very proprietary wholesale data. We're talking a lot more about Lightspeed wholesale, which is -- which includes the new order platform, which is a huge differentiator -- a growing differentiator for us on retail. It's now leading our outbound conversations.

So there are things that we are building our Agentic workflows around that are very unique to Lightspeed and how we play. So yes, a lot of investment, we rolled out Lightspeed AI this quarter. We had 2 innovation events, one in a hospital in Paris, one for retail in New York at the big show -- National Retail Federation's Big Show and just showing that AI vision. We really believe from a customer perspective, there's always going to be a role in a physical commerce setting for a software hardware solution that can enable an interaction and that transaction.

But I do believe that these business owners require AI and Agentic-enabled workflows to be able to keep up with the demands on what it takes to have a successful business in retail and hospitality today. So we're very excited about the path forward from a software innovation perspective and an AI perspective and believe that this software is going to be what makes the difference that's going to be made for these particular business orders and helping them thrive.

One more thing, our insights and analytics products, as you alluded, the payments data and the wholesale data, it's really driving, of course, all of the Lightspeed AI conversational and Agentic workflows but also all those analytics and insights tools that we have that are on retail and hospitality as well as the benchmark and trend tools that we have, those are all built on that proprietary data.

Our next question comes from the line of Raimo Lenschow of Barclays.

Great progress on the focus areas. Congrats from me as well. If you think about the -- on the software side, you obviously have the pricing changes, and that's something that's kind of -- we need to be aware of. Just following on from the earlier questions like, that growth path, like how should we think about that for you? And you won't say like -- actually, you're not going to guide for next year, but like just more conceptually, like has your thinking changed in terms of what growth you can achieve there over the medium term?

Yes, of course. In the quarter, we did lap price increases, which did impact growth and we had seasonality, of course. We also shifted to annual contracts that's a net positive for the company for a lot of our retail new ads. Getting to 10%, growth engines grew 13%, and that's where we're really focusing a lot of our go-to-market motion and landing new customers there. That grew at 9%. Growth engines are now 2/3 of our revenue and growing. And we have a lot more modules on these growth engines. As you can see from the software innovation, the Q3 innovation release. We're shipping a lot of new modules and the cross-sell and upsell motions we expect to accelerate on those -- for those products.

Yes. Okay. Perfect. That's really clear. And then the other things like, obviously, as you said, 2/3 of the business is now the growth engines, 1/3 is the other one. How do you think about that -- maintaining that balance on like what do you do with the last surge in terms of like how that kind of will evolve over time because otherwise you just kind of -- you grow the good part, but when we need to think about the performance of the other part as well to see the overall growth. How do you think about that going forward?

Yes. I think the efficiency portfolio for us has been just a very strong performer. We've been very in line on our targets of beating some internal targets. Gross profit is up on that portfolio. So I think it's a mix of keeping those customers happy on those platforms, adding value, adding more financial services for those customers through our payments platform, both payments and capital. And yes, continuing to serve those customers as we grow the growth portfolio and continue to accelerate so that it can -- so that we are net positive on locations overall for the company. And this quarter, we were. We were up several thousand locations as you combine growth and efficiency.

Your next question comes from the line of Matt Coad of Truist Securities.

I just wanted to go back to the SaaS ARPU again, to totally hear you that maybe the front book SaaS ARPU is coming down a little bit as you shift those contracts from monthly to annual. But I kind of wanted to talk about pricing on the back book. I know we're like lapping some pricing changes, but just wanted to kind of like get some high-level commentary on how you're thinking about pricing over time and how we should think about growth for the overall SaaS ARPU over time?

Yes. Thanks for the question, Matt. You're right, that the SaaS ARPU results that you're seeing now is really coming from the lapping of price increases, and it's up 4% for this quarter. But when we think about specifically to your question, pricing on the back book, we've done a bunch of that starting in the back half of last year.

When we look at -- when we think about the front book, we're actually doing a lot of work on pricing and packaging, and that one is more an evolving motion that we have as we released more and more software modules and Dax talked a little bit about that in the prepared remarks, we continue to evolve our pricing and packaging and working with the back book on moving them to higher tier products or higher-tiered packages.

So I would say on the back book, we've done a big motion there. You'll still see a little bit from us just on pricing in the back book. But for the most part, we're still evolving the pricing and packaging work. And as more and more software modules come to fruition, those pricing and packaging on the front will continue to evolve.

That was super helpful. And then just one quick follow-up. I agree with the other comments so far like location growth surprising to the upside. I was hoping you guys could just unpack the 2,600 wins kind of just around NoAm Retail versus European Hospitality. And then are we starting to see some of the benefits from some of the distribution reinvestments or is that more of a fiscal year 2027 story?

Yes. Location growth, we're very, very proud of this number. It's an acceleration. We're at 9% location growth that's accelerating up from 7% last quarter, 5% the quarter before and 3% all of the year before. So the strategy is really working and the investment in outbound, outbound remote on retail and outbound field for EMEA Hospital, clearly successful. I think that those numbers are distributed across -- fairly evenly across retail and hospitality. What was the second part of your question?

So I just wanted to ask about like are we starting to see an uptick from the distribution investments you made? Or is that still to come kind of as the field -- the sales force sees into that?

Yes. If you're referring to partnerships, I would say that we are seeing some success -- some larger success in partnerships on the EMEA Hospital side through distribution deals and are accelerating that motion on the retail side. And that's a big part of Gabriel Benavides' expertise, as he has started in mid-December and is bringing his expertise to bear here.

Your next question comes from the line of Josh Baer from Morgan Stanley.

Dax, earlier, you talked about some of the proprietary data sets that you have that help sustain your competitive moat. I think when it comes to the topic of AI. I was hoping you could expand and maybe talk a little bit about some of the network effects that you have or the complexity of your vertical sort of end-to-end workflows that you that -- that you offer that not only position Lightspeed well, but also make it hard for new entrants or smaller vendors or in-housing or point solutions or LLMs to kind of take share in the segments of the market that you sit in?

Yes. I mean, first of all, the payments relationship that we have with customers and the fact that we do the transaction in the physical space is, I think, is in itself a unique moat. But of course, the wholesale ecosystem that we're building with a very powerful flywheel that we've really seen accelerate with our investment in the outbound that's led by the new order conversation. That is a very, very interesting and a growing moat for us, a very big differentiator. And just to expand on that, we have several thousand brands that use our enterprise new order platform, and we're bringing those brands to independent retailers, the bulk of the Lightspeed user base.

And that is a unique wholesale offering that no other comparable cloud POS has. There's a supply all the way to consumer workflow there that's incomparable and that we're going to be able to do agentive workflows across that because nobody does that span from consumer to merchant to a wholesale supplier, that we can do something very unique there, and we're starting to just deliver that in products like Marketplace, which we just rolled out and Lightspeed AI, which offers some -- the start of AI tools across that whole chain. So very excited about that. It's very unique in the market, and you're going to see continued acceleration that matches the pace of innovation that you've seen from Lightspeed in the last few years.

That's great. And one follow-up on the location ads. Any sense for where that's coming from, just as far as competitive share gains, new stores opening or expansion within your existing base?

Primarily brand-new -- well, new locations always represents a good 1/3 of all -- brand-new businesses is about 1/3 of new locations. The rest are coming from competing systems that are -- 1/3 is from competing systems that are insufficient and another is from legacy systems. So that's a split of any new location of -- that comes on to the platform, 1/3 brand-new business, 1/3 existing cloud vendors and 1/3 legacy.

Your next question comes from the line of Koji Ikeda of Bank of America.

I wanted to go back to an earlier question on AI and maybe ask in a different way from a customer perspective. And so how are your customers thinking about the pace of adoption of AI products? And when do you think it will become meaningful enough where we could see it driving improving fundamentals for Lightspeed?

Yes. So we've been rolling out AI-powered tools for a while, starting with tools that help build out e-commerce presence, online presences and then later tools on hospitality like benchmarking trends, which allows -- which takes payments data, takes data, but not just at the store but across other stores, anonymized data in our network. So that's another element of network effect, where the more restaurants that are in a particular city or town in Germany, the more competitive data that we can give the hospitality business in terms of like how our neighbor is pricing different menu items and what are the best hours to operate.

So those were early experiments in building out AI-enabled tools and that's driven upsell to larger plans that include those tools. Now with the launch of Lightspeed AI, that's being built into the core platforms and we'll be looking at segmenting that. We have -- as Asha mentioned, we've got pricing and packaging exercises ongoing that include the logic of like how do we offer different levels of AI insights and agentic tooling that will go and do work for these business owners. And that I think is an exciting path forward for the business that allows us to offer new software module value that's really powered by AI.

Got it. Got it. And for my follow-up, maybe for Asha, on the gross payment volume as a percentage of GTV, you mentioned 42%. I think this is the first quarter that it's declined on a quarter-over-quarter basis. And totally [indiscernible] on the reason for this quarter, but I wanted to think about this metric in the future. Is it -- could we expect maybe some more variability in this percentage of GMV going -- or GTV going forward because of strong penetration or seasonal aspects of this? I just wanted to understand that a little bit more.

Yes. Thanks for the question, Koji. Payments penetration, we should always look at that as the opportunity in front of us. So what's left to monetize. Looking at it quarter-to-quarter, to your point, is difficult because of the seasonal trends. But we're super confident in this payments penetration continuing to climb over time. So to your point, you'll see seasonal trends like we saw Q2 Bike and Home & Garden were very strong, moderated slightly in Q3.

And just because they're highly penetrated verticals, you see that delta. But over time, we expect that payments penetration will continue to climb because we're continuing to attach payments on our front book, and we're continuing to go back to the back book as customers come up to their 1-, 2-, 3-year renewals with their existing payment providers, then we move them over to Lightspeed. So definitely confident that, that will continue to climb over time.

Your next question comes from the line of Andrew Harte of BTIG.

Nice results. Asha, on the 4Q guidance, I know you've called out kind of some of the puts and takes, not getting the pricing benefit anymore. But is there anything else you'd call out when we think about the 12% gross profit guidance compared to 15% in the third quarter? Maybe related to that last question a bit on what the assumption is for GTV and payments penetration in the fourth quarter?

Yes. Thanks for the question, Andrew. Our Q4 guide really just reflects the seasonality that we typically see in our fiscal Q4, January to March -- the January to March quarter people just don't spend as much both on retail and in hospitality. And that's not Lightspeed specific, that's industry-wide.

And so we typically see overall GTV in our business drop by anywhere from 15% to 20% if you look at fiscal Q4 last year, you'll see the same dynamics. Outside of that, there's nothing else that's contemplated in the guide. I mean when we think about our execution and the fundamentals of the business, our guide takes into account continued strength in our team's execution.

And then with Gabe in the door now, I would love to kind of hear what the early conversations with him are like. It sounds like the go-to-market engine is really improving and there are some of the investments that are getting pulled forward. So how should we think about go-to-market, especially as we start thinking about our 2027 numbers?

Yes. I think Lightspeed has always traditionally been very, very strong inbound, and that continues to be a strength. It continued to be able to optimize that funnel and get more of the SMB and mid-market merchants into that funnel. And -- but I think it's the outbound that we've really made the big investments in, both outbound road and outbound field. We're interested in really getting more productivity as we ramp those reps.

And in addition to that, from a mid- to long-term perspective, we feel like we can really grow the partnerships business, building on early successes in retail with partners like NetSuite and other ERP vendors that are excited to use Lightspeed in multi-location settings and be the ERP on the back end. And of course, we have a lot of great partnerships that are driving the hospitality business and distribution deals there as well. So that, I think that his expertise is really going to accelerate all of those initiatives in areas where Lightspeed were -- where Lightspeed has a lot of opportunity ahead.

Your next question comes from the line of John Shao of TD Cowen.

For Lightspeed AI, my understanding is there are going to be more advanced features to be added like catalog assistant and store generators, could you first remind us the timeline for those additional features? And maybe also talk about any margin implication because I can imagine that advanced feature is going to consume more tokens?

Right. So we rolled out Lightspeed AI officially during NRF and also previewed it in November for the hospital customers. Obviously, it's slightly different capabilities for retail versus hospital on the retail side, really focusing on insights into inventory and flows within the retail stores and across across their chains. In Hospitality, there's kitchen execution and a lot of different kinds of insights around pacing and other areas. So -- that is with select customers right now, and we'll be rolling it out to larger and larger sets of customers in the months to come.

And it will start to -- we'll start to add more Agentic workflows to it. So beyond conversation and beyond getting insights into being able to do tasks which is what I think businesses are really looking for. They have to wear many hats nowadays. And the more that we can do to allow them to unlock their creativity and unlock their desire to work on curation and taste making in their businesses and less sit behind Lightspeed and mini screens, the better.

And now I'll pass to Asha regarding any thoughts on margins.

Yes. I mean we're not seeing -- we've already started with Lightspeed AI, as Dax talked about, and we're not seeing any significant impact on margins. We feel good again about the software margin that -- we continue to be confident in delivering that.

And maybe on the payment side, could you maybe explain the trajectory for payment penetration in markets outside or growth engines?

Yes, for sure. The payment penetration in the markets outside our growth engines is actually low 30s, whereas as a consolidated entity, we're at about 42% and higher than that in the growth portfolio. So all told, there's a lot of opportunity still in the payments penetration growing in the efficiency market. And quite frankly, that's one of the biggest modules that we're cross-selling and upselling in those markets. And at the end of the day, software and payments revenue in the efficiency markets are flat to slightly up.

And that's been our goal there, right, given that we're not really selling much new business in those markets. So we feel good about the pace of payments penetration in the efficiency market. It's grown year-over-year as well. And we expect that to continue to climb to the 40s and into the 50s over time. The last thing I'll say about that is, it's actually a higher-margin business. Payments is a higher-margin business in the rest of the world than it is in North America.

Our gross take rates are lower at about 1%, 1.5%. The net rates are about 40, 45 bps. So when you look at it from a margin perspective, you're actually getting 40% margins on payments or slightly higher. And so that is impacting quite positively the overall margin of that revenue line item as well.

Your next question comes from the line of Tien-Tsin Huang of JPMorgan.

Good location outcome here. I was just curious about your sales force headcount growth here. Are you satisfied with the quota attainment across the entire base here, especially the new hires? I'm just curious how productivity is tracking because if that continues, then obviously, we could see further improvement on the location side, so I wanted to update there.

Yes. We're very excited about the trend on locations. I think that's -- it's one of the things that we're most proud of in the company. That acceleration from, as I said, from 3% to 5% to 7% to 9% is a big point of pride -- sorry, it's our #1 priority of the company. And of course, that's all because of the investment that we made in outbound. And of course, in addition to that, the refined pitch in retail around new order and the wholesale -- the Lightspeed Wholesale network very powerful in our -- in some of our top verticals like Fashion, Apparel and the Sport & Outdoor.

And then, of course, in EMEA hospital, going city by city in the key markets with bright spots in penetration in key places in Germany and perhaps in addition to several other countries we are very, very excited about that. So we're continuing to accelerate. I think that full productivity -- we have 150 of our contemplated reps now hired now. And now the focus of Gabe and team is to really ramp them to full productivity. And I think his lens on how we get real -- real performance out of what we have is -- will result in more performance and results.

Great. That's great detail. Maybe you touched on it Dax, but just maybe elaborate a little bit more on the pulling forward of growth investments. Asha, I think you talked about that actually, but could we see more of that with him coming in? And is that incremental spend being informed by the production that you've seen so far? Or you may be borrowing it from some other areas that maybe it's not as productive. Just trying to get a little bit more understanding of that.

So it's a little bit of what I was speaking about before, Tien-Tsin, in retail. We're quite excited about what we're seeing in retail outbound, especially leading with the Lightspeed Wholesale new order pitch to those key verticals of Apparel and Footwear and Sport & Outdoor where we have very good density of brands. It's a very powerful pitch to those SMB and mid-market customers. We're closing them. And therefore, we've decided to pull forward some of those reps into Q4 -- hiring those reps into Q4 so that we can have a very, very good start into FY '27.

I see I see. Yes. No, it stood at NRF, the new order side of it. Appreciate it.

Very happy with where we're at -- how we're trending there.

Your next question comes from the line of Martin Toner of ATB Capital Markets.

Two from me. Can you talk about plans for price increases looking into next year? And also the prospect for our software ARPU growth from other sources? And then also, can you just talk about like the health of GTV in the non-core businesses?

Yes, sure. Thanks for the question, Martin. With respect to price increases, as we mentioned, we did a pretty big back book price action in the back half of last year, and that's what we've just lapped and why SaaS growth has moderated. Going forward, most of the uplift will come less from broad price hikes, but just more from evolving pricing and packaging as we add more modules, and we move customers to these higher tier bundles. Dax talked about the pace of innovation. We're doing some really amazing things on our flagship products, which are the products that we're selling in North America Retail and EMEA Hospitality primarily and the result of that innovation is going to be evolving pricing and packaging.

We've already started doing that. And so you should definitely see SaaS ARPU uplift as a result of that into fiscal '27. With respect to -- so that helps software ARPU into fiscal '27 for sure. With respect to GTV in the efficiency markets, we're seeing that customer base remain healthy. And you can see that from the software and the payments growth in the efficiency markets. We've been able to keep that growth flat to slightly up despite really tempering new business in those markets. And that's because we have a healthy customer base that's growing. And you also see it resulting from the fact that the overall location count that Lightspeed was up a couple of thousand as well. And so happy with what we're seeing there and the health of that customer base.

Your next question comes from the line of Thanos Moschopoulos of BMO Capital Markets.

Just on capital, some nice growth there. And obviously, it's a very profitable revenue stream. So how should we think about the pace at which you'll lean in towards growing that over the coming months?

Thanks for the question, Thanos. Yes, you're right. Lightspeed Capital has done really well. We've grown over 30% this quarter and year-to-date as well. We expect similar levels of growth, I would say, in the future, you'll get detailed guidance from us on fiscal '27 in May. What I'll say about Capital is that we're growing this business prudently. We've been very good at deciphering the most creditworthy customers.

And as a result, our default rate still remain in the low single digits, which is really remarkable for this type of business. It is a high gross margin business, close to 100%. Our churn is significantly lower for customers that take capital. And so all told, really excited about the future of capital. We are growing it prudently because we want to make sure that at the end of the day, it is a service we provide customers, but we want to make sure at the end of the day that we are keeping the default rates really low, so that it continues to be a high EBITDA margin business as well.

Great. And then just on churn, qualitatively, within both the core markets and efficiency, any trends of positive or negative? Or is it remaining stable in both those markets?

Yes. We are focused very heavily on optimizing the rest of the world portfolio. And obviously, churn is a big driver, especially because we're not going strong on new business in those markets. And we're really happy with what we're seeing there. I mean, if you look at the total location count again, you'll see that it grew by about 2,000 locations. So we're really doing a good job at managing the churn in that portfolio. And again, software and payments revenue in the efficiency markets have been flat to slightly up. So all told, we're excited about what we're seeing there. And we have been able to optimize that portfolio quite well.

Your next question comes from the line of Trevor Williams of Jefferies.

I wanted to go back to the hardware gross margins. Just if you could unpack where you're leaning in most heavily with the discounting, Asha, that you mentioned. And if we should expect to see that the headwind from gross margins continue to be bigger as the outbound sales reps ramp, that would be helpful.

Yes, sure. I'll take that one. Thanks for the question, Trevor. The negative margins on hardware is due to discounts and incentives that we provide to encourage new business. You've seen a healthy clip of new business and new locations come in and the result of that is we've given some more discounts on hardware. Again, that is pretty industry-wide.

When we think about what free hardware we provide, a lot of that is payments -- payment terminals as we encourage merchants to switch over to Lightspeed Payments. They get prepayment terminals from us. Outside of that, we discount other hardware that we provide with the POS. We expect hardware margins will range in the minus 50%, minus 60%. It really depends on the clip of new business. Overall, we look at total net take from every customer. And at the end of the day, our focus is on growing the overall gross margin of the business, and we're happy with the growth we're seeing there.

Okay. I appreciate that. And then just to clarify on the software growth for the quarter and the call out on shifting some customers on to annual contracts. Any way you can quantify what that impact was on software growth? And if you're going to keep pushing for that transition, does that dynamic get more pronounced over the next few quarters? Or are we at kind of what you think the normal quarterly run rate impact is from that transition?

Yes. We didn't specifically call out the impact of annual. But what I would say is that I would expect to see similar levels of annual -- annual contracts going forward. It's like we said, very good for our business. In this fiscal quarter, we had about 50% of our retail North America contract that were annual versus 25% a few quarters ago. This is great for our business, great for cash flow, great for churn. The lifetime value of these customers is typically much higher. These are more established by GTV customers for the most part.

And so we should expect similar levels of annual discounting. But again, over time, we expect that software revenue growth number to accelerate as the growth portfolio becomes a bigger and bigger part of the total Lightspeed Revenue. Today, it's 2/3. We expect that to be much higher in fiscal '27. And so you should start to see the software revenue growth converge to the software revenue growth we're seeing on the growth portfolio.

There are no further questions at this time. And with that, I will now turn the call back over to Gus Papageorgiou for closing remarks. Please go ahead.

Thanks, everyone, for joining us today. We'll be around all day if anyone has any follow-up questions, and we look forward to speaking to you all when we report our Q4 results in May. Have a great day, everyone.

Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.

Thank you for standing by. My name is Gail, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Gus Papageorgiou, Head of Investor Relations. You may begin.

Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q2 2026 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Asha Bakshani, our CFO; and J.D. Saint-Martin, our President. After prepared remarks from Dax and Asha, we will open it up for your questions.

We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect to conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our second quarter fiscal 2026 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators.

Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated.

And with that, I will now turn the call over to Dax.

Thank you, Gus, and good morning, everyone. I'm thrilled to announce that Lightspeed had another very strong quarter. Revenues, gross profit and adjusted EBITDA came in above our previously established outlook. This marks the second consecutive quarter where we have exceeded revenue and gross profit outlook metrics.

In addition, we delivered positive free cash flow and saw our GTV and location growth accelerate as we continued solid execution of our strategy. Our decision to focus on our 2 core growth engines, retail in North America and hospitality in Europe is clearly working, and we are seeing fantastic momentum. From product development to landing new business, our teams are delivering at a record pace.

To deliver on our strategy, we are harnessing the latest advances in AI. As an example, this quarter, we released a host of new AI-driven products and features to enhance our customers' omnichannel capabilities. We are already seeing strong adoption across thousands of use cases.

Additionally, by increasingly integrating AI tools in our go-to-market efforts, we are seeing sales productivity improvements such as doubling the number of connected calls from our outbound sales reps. We continue to leverage AI thoughtfully to drive revenue, improve products and reduce costs.

I want to begin today by comparing this quarter against the 3 strategic priorities we laid out at our Capital Markets Day. As a reminder, those priorities are: growing customer locations in our growth engines, expanding subscription ARPU and improving adjusted EBITDA and free cash flow.

On growing customer locations. In Q2, customer locations in our core growth engines, North American retail and European hospitality were up 7% year-over-year, an acceleration from 5% last quarter with approximately 2,000 net new customer locations added in the quarter. This acceleration clearly demonstrates that Lightspeed is growing in markets where we have a proven right to win.

As a reminder, our goal is a targeted 3-year customer location CAGR of 10% to 15%, and we are on pace to meet that goal. Total customer location count, which includes all of our markets, was net positive again this quarter. Expanded outbound sales efforts, increased investment in vertical brand marketing and more effective inbound spending have helped drive location growth, particularly in our growth engines. Outbound bookings in our growth engines nearly tripled year-over-year. Since the start of the fiscal year, we've grown our outbound team to approximately 130 fully ramped reps within our growth engines, each now carrying a full quota. This investment is paying off.

Our outbound motion continues to drive highly targeted acquisition of our ideal customers with strong unit economics. We will keep allocating resources toward outbound to capitalize on this proven engine of growth. During the quarter, we continued to expand our presence at trade shows, a great source of lead generation for ICP customers.

Our NuORDER offering gives us a unique position within the retail environment and participating in these events gives us an opportunity to both demonstrate our strong product offerings and communicate our vision for NuORDER and our wholesale network. We're also continuing to host our own signature product innovation events, where we gather customers to showcase recent product launches and industry insights.

Coming up, we'll be hosting Lightspeed Edge in Paris on November 24 for hospitality customers and New York City on January 12 for our retail customers. All these efforts continue to have a halo effect on our inbound funnel as we increase our visibility with our ideal customers through trade shows, outbound targeting and Lightspeed branding on our terminals at local restaurants in Europe and retailers in North America.

We had many notable customer wins this quarter. In retail, we added 40-location Crock A Doodle, which operates pottery painting franchises across Canada, Benson's Pet Center with 9 locations in New York and Massachusetts. Within NuORDER by Lightspeed, we extended our partnership with Nordstrom and added marquee brands such as Carhartt and Steve Madden. And in golf, we signed on Top of the World Communities with 3 restaurants and 2 golf courses in Candler Hills, Florida.

In hospitality, we added the 2 Michelin Star restaurants Hirschen in Salzburg, Germany. The Beckford Group focuses on unique premium hospitality experiences across their 6 locations in the Southwest of England. And with 2 locations in Antwerp, Belgium, we welcomed Da Giovanni, one of the area's well-known Italian restaurants. On driving software revenue and ARPU. Q2 software revenue grew 9% year-over-year and software ARPU increased 10%.

Growth in our key markets is fueling software revenue as expanding location counts and targeted outbound efforts attract larger, more sophisticated customers who tend to adopt higher-end plans. This momentum is further supported by our steady release of new innovative features on our flagship offerings. In the quarter, we released several new features. In retail, we launched multiple AI-powered tools designed to dramatically improve our merchants' online presence with minimal cost or effort on their part.

We launched the Lightspeed AI showroom designed for physical retailers who want a compelling online presence without the added time commitment of running an e-commerce store. Lightspeed's AI agent takes product data hosted within the Lightspeed platform and delivers a custom-branded website and catalog to help drive store traffic.

Originally released back in March in beta, Lightspeed's cutting-edge AI-driven website building tool is now available to all customers who are looking to offer a full e-commerce experience. Merchants simply describe or show Lightspeed's website builder the kind of site they want using real-world examples, and the tool builds a fully integrated professional looking online store with speed and ease.

And we launched AI product descriptions. This powerful new tool significantly streamlines the manual workflow, adding new products to e-commerce sites. Retailers can customize subscriptions by adding specific instructions for tone, style and length to ensure brand consistency. Since August, this description and formatting tool has been used to create approximately 57,000 unique product descriptions. In addition to these AI-powered tools, we were very excited to launch NuORDER Marketplace.

Currently, our retailers use NuORDER to connect directly to each of their brands individually, allowing them to search within that brand's product catalog. However, our retailers have to conduct searches brand by brand. With marketplace, retailers can search for specific products, colors, styles or sizes across multiple brand catalogs simultaneously to help them discover new products and better curate their offerings.

Currently in beta, Marketplace will be launched soon to all eligible NuORDER customers. In hospitality, we launched Integration Hub. The hub enables our customers to easily discover, connect to and start using over 200 third-party applications within the Lightspeed ecosystem. We've seen strong initial reception with almost 1/3 of our flagship hospitality customers interacting with the hub since its launch.

Adding on to the already robust capabilities available to restaurant tours through Lightspeed's AI-powered benchmarks and trends, our latest update adds new visual layers to the sales performance chart, highlighting best and worst days relative to the market and providing drill-down views for each sales metric, helping merchants to make data-driven pricing and operational decisions.

Benchmarks and trends remains the anchor feature for our top-tier plan within hospitality. In August, we launched Lightspeed Capital in Switzerland, where we saw strong and immediate demand from our Swiss customers. Finally, we launched time menus to bring automation to multi-menu setups, eliminating the need for manual workarounds. We also enabled Lightspeed Order Anywhere to sync with the restaurant's Google business profile, ensuring a consistent online presence and improving discoverability.

By narrowing our focus to our growth engines, we've enabled our development teams to become far more productive, and I'm thrilled with the pace of innovation we are seeing on our 2 flagship offerings. I want to take a moment to share a glimpse of what's next for Lightspeed. As you have seen with several of our recent product launches, we've been deeply investing in AI as a meaningful way to empower our customers and redefine how they run their businesses.

I'm thrilled to preview our upcoming innovation, Lightspeed AI, a new way for merchants to access insights and make decisions directly within their POS. Think of this as your AI assistant with agentic capabilities. Our AI acts as a trusted partner to help our customers find answers, uncover trends and act faster than ever before, custom-built to serve our retailers and restaurateurs' needs. This is the next evolution of Lightspeed's AI journey, building on the success of products like AI showroom and benchmarks and trends and is already being tested by a select group of customers.

We can't wait to share more in the coming months as AI becomes a foundational part of how we help businesses thrive. On expanding profitability. Finally, our third strategic priority was to expand profitability. And in this quarter, we did exactly that through expanded margins and improved cash flow. Lightspeed further strengthened its software gross margins to 82% and transaction-based gross margins reached 30%, with both improving year-over-year and from the previous quarter.

Adjusted EBITDA of $21 million increased 53% year-over-year. Importantly, we also saw improved cash flow, delivering adjusted free cash flow of $18 million, up significantly from $1.6 million in the same quarter last year. Back in March, at our Capital Markets Day, we laid out a bold strategy with 3-year financial goals. We are now over 2 quarters into that period, and I believe our strong results are evidence that we are well on our way.

Within retail, our large customers are complex retailers that need sophisticated solutions to help them order, manage and turn over their inventory. These customers need more than basic software to run their businesses. They need a light ERP solution, which is exactly what we offer. We believe no other cloud POS vendor can match the feature set within Lightspeed Retail.

In addition, we stand apart with the NuORDER Lightspeed integration because with NuORDER, Lightspeed's retail POS has wholesale built right in. The end result is an unmatched ordering workflow and a flywheel effect where more brands bring in more retailers and more retailers bring in more brands. Within European hospitality, I am confident that we have the superior product offering.

We are now complementing that strong offering with the go-to-market motion that is becoming best-in-class. In addition, regulatory requirements involving fiscalization are a barrier to new entrants into that lucrative market. We have a formula that is working, and we believe we will continue to excel in this region.

I will let Asha take you through our financials before making closing comments.

Thanks, Dax, and welcome, everyone. Lightspeed had an exceptional second quarter with our key financial metrics and KPIs surpassing expectations. Our results are evidence that our product innovation, our aggressive outbound strategy and our strategic focus we embarked on are working. We are delivering in the areas that matter most, which sets us up well for the long term.

Before I take you through the financials, I would like to highlight some key trends in the quarter that I found very encouraging. First, and perhaps most importantly, we're seeing a tremendous impact from our strategy to focus on our growth markets of North America retail and European hospitality, as you heard from Dax. Software revenue in these markets increased 20% year-over-year. GTV was up 15% year-over-year.

Payments penetration was 46%, up from 41% last year, and customer locations were up 7% year-over-year versus 5% in the previous quarter. These markets make up over 65% of our total consolidated revenue. When we isolate the metrics in these markets, they reveal the true competitiveness of our offering and the strength of our platform. We are really excited about the accelerated growth we're seeing in these markets, especially since we are still early in our transformation.

Second, even with aggressive investments in product and go-to-market, the company's total profitability and cash flow metrics continue to improve. Gross margins and adjusted EBITDA showed great progress, and our relentless focus on driving profitable growth helped us deliver positive free cash flow of $18 million in the quarter, up from $1.6 million a year ago, and we expect to generate breakeven or better free cash flow for the full fiscal year, a significant milestone for Lightspeed.

As usual, I will walk you through a detailed look at our financials and then provide our Q3 and fiscal 2026 outlook. Total revenue grew 15%, ahead of our outlook, driven by a growing location count, software ARPU expansion and increasing payments penetration. Revenue growth was primarily generated by our growth markets of North America retail and European hospitality as more and more customers move on to our platforms and attach new modules.

In addition, we benefited from improving same-store sales, thanks to a more stable macro environment. Software revenue was $93.5 million, up 9% year-over-year, with software ARPU up 10% year-over-year. Software ARPU increased due to our outbound teams attracting larger customers, new software releases and the benefit of price increases we implemented last year.

Transaction-based revenue was $215.8 million, up 17% year-over-year. Gross payments volume grew 22% year-over-year and capital revenue grew 32% year-over-year. GPV as a percentage of GTV came in at 43%, up from 37% in the same quarter last year. Overall GTV grew by 7% to $25.3 billion and total average GTV per location continued to climb as we continue to sign more high-value customers.

GTV in Europe benefited from favorable FX rates as the U.S. dollar weakened against local currencies. Total monthly ARPU reached a record $685, up 15% year-over-year, driven by both higher software and payments monetization. ARPU grew across both our growth and efficiency markets with growth markets outpacing the overall average. And as those locations grow, we expect a continued positive impact on overall ARPU.

With respect to our efficiency markets, our goal is to maintain the revenue base through additional module attachments and expansion of financial services. As an example, this quarter in Australia, we launched Instant Payout on Lightspeed Payments for hospitality merchants. This high-margin offering allows merchants to receive their daily sales the very same day, including weekends and holidays.

There also continues to be meaningful opportunities to grow payments revenue in these markets as payments penetration is at 36%, well below the 46% penetration in our growth markets. In the quarter, we were able to keep total revenue close to flat year-over-year. With respect to profitability and operating leverage, total gross profit was strong, growing 18% year-over-year, exceeding both 15% revenue growth and our prior 14% outlook, driven by strong top-line performance and expanding gross margins in both subscription and transaction-based revenue.

Total gross margin was 42%, up from 41% last year, despite transaction-based revenue increasing to 68% of total revenue from 66% last year. Hardware gross margins declined this quarter due to strategic discounts and incentives to drive new business as well as free hardware provided to support customer transitions to our Unified Payments and POS offering. We delivered strong software gross margins of 82%, up from 81% last quarter and 79% a year ago. This is largely driven by increased cost efficiency. We are increasingly using AI to reduce the cost of support and service delivery.

As an example, AI now resolves over 80% of inbound chat interactions on our flagships. This has allowed us to significantly reduce headcount in support, which is showing up in our expanded gross margins in software. Gross margins for transaction-based revenue were 30%, up from 27% last year. This improvement reflects growth in our capital business and in payments penetration in our international markets, where margins exceed those in North America.

As we convert customers to Lightspeed Payments, we increased our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grow 28% year-over-year. Total adjusted R&D, sales and marketing and G&A expenses grew 13% year-over-year. This includes meaningful investments we are making in field and outbound sales as well as product innovation in our growth engine.

Adjusted EBITDA in the quarter came in at $21.3 million, increasing 53% from $14 million in Q2 last year, driven by continued successes from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percent of gross profit, adjusted EBITDA was 16%, approaching the longer-term 20% target we outlined at our Capital Markets Day.

I'm very happy to report adjusted free cash flow of $18 million in the quarter. Thanks to our improving profitability and disciplined working capital management, we were able to deliver positive free cash flow despite our accelerated outbound strategy and increased investment in R&D. Although free cash flow will vary quarter-by-quarter, we expect to deliver breakeven or better adjusted free cash flow for the full fiscal year.

We continue to actively manage our share-based compensation and related payroll taxes, which were $17.4 million or 5% of revenue for the quarter versus $19.5 million or 7% of revenue in the same quarter last year. With respect to capital allocation and our balance sheet, we ended Q2 with approximately $463 million in cash, an increase of approximately $15 million from last quarter.

Approximately $200 million remains under our broader Board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases. Total shares outstanding in the quarter were down by 10% versus the same quarter last year due primarily to the $179 million in shares repurchased and canceled over the last 12-month period.

Aside from potential buybacks, our largest use of cash will be growing our merchant cash advance business. There are currently $107 million in MCAs outstanding, and we believe we can continue to grow this balance over time. With that said, we're also running the MCA business more efficiently, using less capital this quarter versus the same quarter last year despite growing revenue by 32%.

This is due to our successful effort to reduce payback periods to 7 months. With respect to M&A, we remain opportunistic in the evaluation of small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue our strategic focus.

Now turning to our outlook. For modeling purposes, I would like to highlight a couple of factors. First, Q3 GTV is generally flat to slightly down from Q2 due to seasonality, and we expect similar performance this year. Although Q3 benefits from the retail holiday season, in Q2, we have strong performance in European hospitality as well as golf. In terms of software growth, in Q3, we will lap the price increases implemented last year. As a result, we expect software growth to slightly moderate for the second half of the year.

Looking ahead, we remain confident in our ability to execute against our go-forward financial outlook shared at our Capital Markets Day in March. As a recap, we targeted a 3-year gross profit CAGR of approximately 15% to 18% and a 3-year adjusted EBITDA CAGR of approximately 35%. Given our strong performance to date, we are raising our outlook for the full fiscal year. For the third quarter, we expect revenue of approximately $309 million to $312 million, gross profit growth of at least 15% year-over-year and adjusted EBITDA of approximately $18 million to $20.

For fiscal 2026, based on a strong first half of the year, we are increasing our outlook for the year. We expect revenue growth of at least 12% year-over-year, gross profit growth of at least 15% year-over-year and adjusted EBITDA of at least $70 million.

With that, I'll turn the call back to Dax.

Thanks, Asha. Before we take your questions, I would like to take this time to welcome our new Board members. In July, we welcomed Glen LeBlanc, the former EVP and CFO of BCE Inc., who brings with him over 30 years of tech and telecom experience. Last month, we also welcomed Sameer Samat and Odilon Almeida to our Board of Directors. Sameer is currently President of the Android ecosystem at Google, and Odilon served as the CEO of ACI Worldwide, a global payment software and solutions provider.

I look forward to working with all of them as we continue to advance our strategy and support our customers. I would also like to thank our departing Board members, Rob Williams, Paul McFeeters and Patrick Pichette for their contributions and support over the past several years.

In closing, I think Q2 is clear evidence that our strategy is working. I want to thank all of the employees at Lightspeed for making this strategy a success. Without your dedication and commitment, none of this would be possible.

With that, I will turn the call back to the operator to take your questions.

[Operator Instructions] Your first question comes from the line of Thanos Moschopoulos of BMO Capital Markets.

It seems like you're seeing a good return on your investment in outbound sales. And so in light of that, how should we think about the sales ramp? Might you look to accelerate your hiring plans for this year? And maybe too early to talk about next year, but safe to assume that you'll continue to ramp those investments heading into next year?

Thanks, Thanos. Yes. So outbound sales, overall, it's going really, really well. Our Q2 outbound bookings tripled year-over-year. So really, really pleased about that. As you know, this is the go-to-market motion that's going to allow us to really target our ICPs with precision and really have the best sales metrics.

We've grown our outbound team to approximately 130 fully ramped reps right now in our growth engines, North American retail and EMEA Hospital (sic) [ European hospitality ]. And those are all carrying a full quota. We are expecting to get to 150 by the end of the fiscal year. And yes, and we are planning -- we're in the planning stage for how many reps we'll deploy in subsequent years.

Okay. Great. And then maybe just a question on capital. As we think about the growth going forward? I mean, is much of that going to be driven by the launch in new geographies? And how should we think about the rollout? You mentioned Switzerland. What will be the strategy there for further expansion?

Yes. I'll take that one. Thanks, Thanos. Capital is going really, really well. You saw that come through in the prepared remarks and in the PR. We are using capital to upsell and cross-sell across the base. And in the Rest of the World portfolio, capital is one of the products that's super popular in the upsell to the merchant base. As we continue to ramp outbound and bring more ICPs into the funnel, we should continue to see capital growing quite nicely.

You saw over 30% growth this year, and we should expect to see pretty solid growth into future years because the ICP customers that we're getting through in the outbound funnel are real prime customers for the capital business. They're very creditworthy, high GTV customers. And so that's -- we should expect that to help capital grow even stronger.

Your next question comes from the line of Trevor Williams of Jefferies.

I wanted to start with a bigger picture question on pricing. Just how you guys would frame the current backdrop at the industry level. Asha, I heard the call out on hardware discounting as more of a customer acquisition tool. I'm just curious if that's more of a proactive or reactive move to anything you're seeing competitively.

Trevor, thanks for the question. The hardware discounting is totally proactive. The hardware discounting is quite typical and common. You saw a slight uptick this quarter from what you've seen historically, and that just comes with more new locations. As we attract more and more locations in our growth portfolios, in particular, we are giving discounts to get those customers through the door.

Pricing and packaging overall has been going very well for Lightspeed. We had some pretty significant price increases about a year ago, and that's what you're seeing come through partly in the growth this year. As we look forward, Dax talked a bit about all the product velocity and how strong that has been at Lightspeed. And so we keep including these new modules in different pricing and packaging. And so that evolution is going to continue, and that continues to drive quite a nice ARPU uplift for Lightspeed.

Okay. No, I appreciate that. And then on the GTV growth acceleration we saw this quarter, I think you called out higher GTV location from the success with the growth engines. Anything else you can dimensionalize around same-store sales, location growth?

And I know you don't guide to GTV growth, but with the momentum that we're seeing on the growth engines side, is it fair for us to assume that the trajectory that we've seen over the last couple of quarters that, that should persist going forward?

Yes. I'm going to say that same-store sales in both retail and hospitality, both in NAM and Europe were really positive this quarter. It's the best quarter for same-store sales in quite some time. And total GTV was up about 15% year-over-year in the growth engines and about 7% overall.

So that's a good acceleration. It's also driven by all of the new locations. As you saw, we closed 2,000 new locations in the growth engines, which is an acceleration from last quarter.

Your next question comes from the line of Josh Baer of Morgan Stanley.

Congrats on a really strong quarter. I wanted to dig in a little bit on investments in EBITDA and just really understand the takeaway from the change in the EBITDA guidance sort of reframe from $68 million to $72 million to greater than $70 million.

So you've been -- you outperformed EBITDA again, the guide for Q3 was good. Like is there a reason to think that investments are ramping in the back half of the year and into Q4? Or yes, like how should we think about greater than $70 million? And then I just have a follow-up on OpEx.

As you can see, we're seeing a lot of traction in our growth engines. We want to continue to accelerate location counts. We want to continue to invest in our go-to-market. And so some of that -- some of our -- some of the funds are being reinvested in continuing that trajectory. I think that's important for the company. I think everybody wants to see us be able to capture share in our biggest opportunities for growth. Asha?

Yes. Thanks, Josh. I think Dax really drove that point home. We're just -- the EBITDA raise is smaller than the beats that you've seen to date only because we really want to give ourselves the flexibility to double down on investments where we're seeing that the investments pay off even more quickly than expected.

And we are seeing that in several areas in our growth engines. And so the smaller EBITDA raise is really to give ourselves that flexibility to continue to invest in growth. There's a large TAM out there, and we're excited about that.

Okay. That makes a lot of sense. I guess a follow-up would be on just the software piece here. Software ARPU growth is higher than the total software revenue growth, but you're still adding customers on a net basis year-over-year, quarter-over-quarter. How do we put those 2 different growth rates?

Yes. Great question, Josh. The software ARPU growth is growing faster than total software growth really just results from the mix shift. As we're bringing larger and larger customers onto the platform and churning the smaller customers, you're seeing that show up in the average revenue per user per month more quickly than in the software revenue.

And that's really all that's about -- and that's a good news story for Lightspeed. We're bringing more of the larger customers, higher ARPU customers onto our platform, and we're seeing the vast majority of the churn in the smaller merchants.

Your next question comes from the line of Tien-Tsin Huang of JPMorgan.

Just curious, any good quarter here. Any interesting observations out of the growth markets from a monthly perspective, month-to-month, that is, that informs your confidence to raise your outlook? And I'm curious, same question here for quota-carrying sales, any seasoning effects here? I'm assuming you'll see more productivity. I just don't know how that's balanced across the 130 that you have.

I think Q2 is a really good quarter for European hospitality. It's their go-to season as well as for golf. Obviously, we'll see a little bit less of those 2 elements of the growth engines in Q3. We'll see more of NoAm retail.

So that's sort of how our seasonality looks in the next little while. But yes, I think we are we are seeing a real payoff of those go-to-market efforts and those growth engines. We're seeing acceleration. And I think with outbound, we're really able to target those customers that are natural fits for where our product plays, which is those higher GTV merchants in retail and hospitality.

Got it. And then Dax, I'm curious I have to ask on the efficiency markets. Any change there in your thinking on strategy? Because it seems like there's some surgical things you're doing there to enhance growth or productivity there. Any change in thoughts?

I think we consider this a really big success, right? It's really helping us fuel growth in the growth engines. We see 20% software growth in our growth engines. We're happy. But as you can see, the efficiency markets are really holding. We're -- we have really positive trends on efficiency, and we're -- yes, it's maintaining what it needs to.

[Operator Instructions] Your next question comes from the line of Matthew English of RBC Capital Markets.

This is Matthew on for Dan Perlin, RBC. So I have a question on NuORDER. It's great to hear the rollout of Marketplace. I was wondering if you could frame the monetization strategy of that asset and maybe the outlook for attaching payments to that B2B volume.

Yes. This is such an exciting part of the strategy, and you're seeing quarter after quarter become a bigger and bigger part of all parts of the retail story, and it's a massive part of our sales pitch now. So we are the only retail POS with wholesale built right in.

You're going to see a massive rollout of our vision of this at NRF. But day-to-day in our sales calls, this is -- it is a massive benefit for the retailers in our target verticals to be able to buy from wholesale right inside our platform because we can offer a workflow that literally nobody else can offer in our space.

Now that is even made more powerful by the fact that we can leverage all of our insights, our AI-driven insights and our capital products to make turns of inventory even more efficient. And now with Marketplace, it's not just the brands that you're currently working with that are available to you NuORDER, you can now discover new brands, search across brands that you haven't interacted with.

And so it really opens up the world of NuORDER for our retail customers and allows them to diversify and add to their curation. So it's very, very exciting, multifaceted advances on NuORDER. We have amazing brands coming on to the platform as well, like this quarter, Carhartt is a major new addition. And I think what's exciting about that is that Carhartt also has a lot of retailers that they work with that should be on Lightspeed.

And so brands are recommending retailers join the platform and retailers are recommending that their key brands are also on the platform. And as you mentioned, there's a big payments opportunity here as well. So we've got now the infrastructure in place to take advantage of that, and that's a part of our acceleration strategy with NuORDER.

Your next question comes from the line of Matt Coad of Truist Securities.

Really good set of results here. I wanted to touch on the locations growth. I thought really encouraging set of results, both on total locations and growth engines. I was hoping you could unpack it a little bit for us, both on gross adds in the growth engines, kind of like what subverticals maybe you're seeing outsized success in or what kind of geographies within Europe you're seeing success in?

And then also curious if you could touch on churn rates. It seems like churn rates have gotten a little bit better for you guys based on our math. So any tidbits or pieces of information there would be helpful.

Yes. I think this is a major win for the company to have 2,000 new locations, an acceleration from 5% to 7% location growth in 1 quarter. As you know, our 3-year CAGR that we shared at Capital Markets Day is 10% to 15% location growth. So in 2 quarters of the transformation, we're already making major progress.

And this just feeds all of our metrics, right? It just helps everything grow to have more high-quality merchants joining the platform. And so this is the #1 thing that I talk about every single day at the company as we have to bring more customers on to Lightspeed's platform.

And this has become a rallying cry because we know that we can add value for these customers by having them join the platform, by having them leverage NuORDER, by having them leverage all our new AI tools and all of the deep inventory tools and restaurant management tools that we have for European restaurants as well.

So in our growth engines, I would say location growth, if you look quarter-by-quarter. It's pretty evenly split across the 2 growth engines. We've got areas of seasonality, of course. When it's go time for European hospitality and golf in the summer months, there's less likely to be onboard onto a new system. They're often interested in learning about it, but to close them, it's more likely to close them in Q3.

And then conversely, for retail, they're not going to want to switch systems in the middle of the buying holiday season, which is their opportunity to make the most money. So yes, we do see different opportunities, but I think we are able to -- we're still able to grow in our key verticals. So the key verticals as well for retail where we see some of the biggest opportunity is multi-brand apparel that are using NuORDER to buy from a lot of different brands.

We, of course, are very, very strong in sport and outdoor, which includes some of our strongest verticals like bike and golf, but there's a lot of other different verticals that we're doing really well in like running and swimwear, et cetera.

In European hospitality, we're in a number of different European countries. We've been historically strong in the Benelux and the U.K., but France and Germany are real exciting stars for us right now as well. So this is -- there's lots of areas of strength that we're going to continue to build on.

With no further questions, that concludes our Q&A session. I'd now like to turn the conference back over to Papageorgiou for closing remarks.

Thank you, operator. Thanks, everyone, for joining us today. We will be around all day if anyone has any further questions, and we look forward to speaking to you at our next conference call in early of next year. Thanks, everyone, and have a great day.

This concludes today's conference call. You may now disconnect.